What is the 60% Tax Trap?
The "60% tax trap" is a quirk of the UK tax system that affects high earners between £100,000 and £125,140. It's not an official tax rate, but rather the effective marginal rate you pay due to the Personal Allowance taper.
Key Facts
- ✓ Your Personal Allowance (£12,570) reduces by £1 for every £2 earned over £100,000
- ✓ It completely disappears at £125,140
- ✓ This creates an effective marginal tax rate of 60% in the trap zone
- ✓ You pay 40% income tax PLUS lose 20% on the tapered allowance
How It Works: A Real Example
Let's say you earn £110,000 per year. Here's what happens:
That extra £10,000 you earned costs you £6,000 in tax (£4,000 at 40% + £2,000 from lost allowance) - an effective rate of 60%.
By contributing to a pension, you reduce your "adjusted net income". If you bring this below £100,000, you restore your full Personal Allowance and avoid the 60% tax rate.
Who's Affected?
This creates an effective marginal tax rate of 60% on income between £100,000 and £125,140.
The 60% tax trap affects anyone with adjusted net income between £100,000 and £125,140. This includes:
- Senior professionals and managers
- Contractors and consultants
- Anyone receiving a large bonus that pushes them over £100k
- Business owners taking dividends alongside salary
Important Note
It's your adjusted net income that matters, not just your salary. This includes bonuses, dividends, rental income, and other taxable income, minus pension contributions and Gift Aid donations.
How to Avoid the 60% Tax Trap
The good news? There are several legitimate ways to reduce your adjusted net income and escape the trap:
1Salary Sacrifice Pension Contributions
The most effective strategy. Pension contributions reduce your adjusted net income before tax is calculated.
Example:
Earning £110,000? Contribute £10,000 to your pension via salary sacrifice. Your adjusted income drops to £100,000, saving you £6,000 in tax (60% of £10k). Your pension costs you just £4,000 net!
2Gift Aid Donations
Charitable donations through Gift Aid extend your basic rate band, effectively reducing your adjusted net income.
Example:
Donate £8,000 to charity. The grossed-up amount (£10,000) reduces your adjusted income, potentially saving you £2,400 in tax.
3Strategic Timing of Bonuses
If you're close to the £100k threshold, consider deferring bonuses to the next tax year or spreading them across multiple years to avoid the trap.
4Childcare Vouchers or Salary Sacrifice Schemes
If you're in an existing childcare voucher scheme, these reduce your adjusted net income. Note: new schemes closed in 2018, but existing members can continue.
Calculate Your Full Tax Position
Use our comprehensive salary calculator to see your complete tax breakdown, including National Insurance, pension contributions, and student loans.
Go to Full Calculator →Frequently Asked Questions
Does the 60% tax trap apply in Scotland?
Yes, the Personal Allowance taper applies across the whole UK, including Scotland. However, Scottish taxpayers also face different income tax bands, which can make the effective rate slightly different.
Can I claim back overpaid tax if I didn't know about this?
Unfortunately, no. The tax is calculated correctly by HMRC - it's the system design that creates the 60% effective rate. However, you can plan ahead for future years using the strategies above.
What if my income fluctuates year to year?
If you have irregular income (bonuses, dividends, etc.), it's worth planning carefully. Consider using pension contributions strategically in high-income years to stay below £100k.
Is it worth turning down a pay rise to avoid the trap?
No! Even with the 60% rate, you still keep 40p of every £1 earned. It's better to earn more and use mitigation strategies like pension contributions to reduce the tax impact.