Earn between £100,000 and £125,140? Here's how losing your Personal Allowance creates a 60% effective tax rate in 2026/27, with worked examples and HMRC-approved ways to reduce it.
If you earn somewhere between £100,000 and £125,140, you can be paying an effective Income Tax rate of 60% on part of your pay. This band is sometimes called the "£100k tax trap" and isn't an official tax rate. It happens because your tax-free Personal Allowance gets taken away as your income goes up. This guide explains how it works for the 2026/27 tax year (6 April 2026 to 5 April 2027), walks through worked examples, and covers the legitimate options HMRC gives you to reduce it.
All figures in this guide come from GOV.UK and HMRC guidance, which is linked throughout. The examples use the rates for England, Wales and Northern Ireland. Scottish Income Tax bands are different, but the Personal Allowance taper itself works the same way in Scotland.
According to GOV.UK's current Income Tax rates, the standard Personal Allowance for 2026/27 is £12,570. If your adjusted net income is above £100,000, your Personal Allowance goes down by £1 for every £2 of income above £100,000. That means it reaches zero once your income is £125,140 or above.
The 2026/27 bands with a standard Personal Allowance are:
Take someone who already earns £100,000 and gets a £2 pay rise. They pay 40% higher-rate tax on that £2, which is 80p. Their Personal Allowance also falls by £1, so another £1 of income that used to be tax-free is now taxed at 40%. That adds another 40p. In total, they pay £1.20 of tax on £2 of extra income, which is 60%.
The effect lasts for the full £25,140 between £100,000 and £125,140. After that the allowance is gone, so there's nothing left to lose, and the marginal rate becomes the 45% additional rate.
Employees also pay National Insurance. GOV.UK says that for 2026/27, Class 1 employee contributions are 8% on earnings between £12,570 and £50,270 and 2% above that. That puts the combined marginal rate on salary in this band at around 62%. If you also repay a student loan, it's higher still.
The taper isn't based on your salary. It's based on your adjusted net income, which HMRC defines in its adjusted net income guidance. In simple terms:
This definition is what makes the trap avoidable. Pension contributions and charitable giving both reduce adjusted net income, so each one can win back some or all of your Personal Allowance.
Priya earns a salary of £110,000 and has no other income or pension deductions.
At exactly £100,000, Priya would pay £7,540 plus £49,730 × 40% (£19,892), which is £27,432. Her extra £10,000 of salary costs her £6,000 in Income Tax, or 60%. After another £200 of National Insurance at 2%, she keeps £3,800 of the £10,000.
At £125,140 the Personal Allowance has gone completely.
Compared with £100,000 (£27,432), that's £15,084 more tax on £25,140 more income. That's 60% again, which confirms the effective rate holds right across the band.
Tom earns £115,000. His employer offers pension salary sacrifice, and he gives up £15,000 of salary in exchange for an equal employer pension contribution. His salary for tax becomes £100,000, so his adjusted net income is £100,000 and he gets his full £12,570 Personal Allowance back.
Tom adds £15,000 to his pension, and his take-home pay falls by only about £5,700. Some employers also pass on part of their own National Insurance saving. HMRC explains how these arrangements work in its salary sacrifice guidance for employers. Salary sacrifice has to be agreed with your employer, and it changes your contractual pay, so check how it affects things like mortgage applications or other pay-linked benefits.
Aisha earns £120,000. She has no salary sacrifice available, so she pays £16,000 into a personal pension such as a SIPP. Her provider claims 20% basic-rate relief from HMRC and adds £4,000, making a gross contribution of £20,000.
A £20,000 pension contribution ends up costing Aisha about £8,000, because she gets £12,000 of tax relief, an effective 60% rate. GOV.UK explains that higher- and additional-rate taxpayers claim the extra relief through Self Assessment, or in some cases by contacting HMRC. If you don't claim it, you lose the extra relief and the restored Personal Allowance never shows up in your tax.
Going over £100,000 can also cost parents money outside the tax system. GOV.UK says you can't get Tax-Free Childcare if you or your partner expect adjusted net income over £100,000 in the tax year. The same limit applies to the 30 hours free childcare scheme for working parents. Tax-Free Childcare is worth up to £2,000 per child per year, or £4,000 for a disabled child. The funded hours can be worth much more, depending on where you live and what your nursery charges.
For a family with two young children, earning £1 over £100,000 could cost thousands of pounds in childcare support. In that situation, bringing adjusted net income back down to £100,000 through pension contributions is often worth much more than the 60% tax saving alone.
If you also get Child Benefit, a separate charge applies once adjusted net income is over £60,000. The High Income Child Benefit Charge takes back 1% of the benefit for every £200 over £60,000, so by £80,000 it has all been repaid.
All of these options are set out in HMRC rules. None of them are loopholes.
This is the most widely used option, as worked examples 3 and 4 show. Check your pension annual allowance before making large contributions. The standard annual allowance is £60,000, but it can be lower for people with very high incomes or who have already taken money flexibly from a pension. Unused allowance from the previous three tax years can sometimes be carried forward.
If you give to charity, Gift Aid donations reduce your adjusted net income by their grossed-up value. For example, a £4,000 donation counts as £5,000 gross, which reduces adjusted net income by £5,000. You claim the higher-rate relief through Self Assessment.
The taper works on the whole tax year. If you have real flexibility over when income arrives, such as a self-employed invoice or a dividend from your own company, spreading it across tax years can keep you under £100,000 in each year. Employees usually can't choose when their bonus is paid, although some employers let you sacrifice a bonus into your pension.
Savings interest and dividends count towards adjusted net income. Money held in an ISA doesn't. GOV.UK confirms you don't pay tax on ISA interest, income or gains, and you can put in up to £20,000 a year. Couples can also look at who holds which savings, but transfers between spouses must be genuine, outright gifts.
The easiest way to see the effect on your own payslip is to compare two salary figures side by side. Try our free UK take-home pay calculator. Enter your salary, then the same salary minus your proposed pension contribution, and look at how much your monthly net pay actually changes.
If your tax code looks wrong after you go over £100,000, read our guide to tax code 1257L and what it means. HMRC usually reduces your code once it expects your income to be over the limit. If your income is mainly from dividends, our 2026/27 dividend tax rates guide shows how dividends are taxed in each band.
No. The official rates are 20%, 40% and 45%. The 60% figure is the effective marginal rate that comes from combining the 40% higher rate with losing your Personal Allowance at £1 for every £2.
At an adjusted net income of £125,140 or more for 2026/27, as set out on GOV.UK.
Yes. Bonuses are taxable employment income and count towards adjusted net income in the tax year they're paid.
Yes. The sacrificed salary isn't taxable pay, so it never adds to your income in the first place.
Yes. The Personal Allowance taper is UK-wide. Scotland has different Income Tax bands and rates, so the effective marginal rate in the band is higher than 60%.
Often, yes, if your employer's payroll data shows you're over the limit. But HMRC only knows about other income, such as rental profit or interest, if you tell it. You can check your Income Tax for the current year online.
Only partly. Personal pension contributions and Gift Aid count in the tax year you pay them. Gift Aid has a limited option to treat a donation as made in the previous year, as long as you do it before you file that year's return. Salary sacrifice can't be backdated. It's best to plan before 5 April.
This guide is general information based on GOV.UK and HMRC guidance for the 2026/27 tax year. It isn't personal financial advice. For complex situations, speak to a regulated financial adviser or a qualified tax adviser.
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