How do I avoid the 60% tax trap at £100,000 UK?

Full answer

The **60% tax trap** occurs because the Personal Allowance (£12,570 in 2026/27) is tapered away for adjusted net income between **£100,000 and £125,140**. For every £2 of income above £100,000, the PA reduces by £1 — meaning the effective marginal rate on this band is 40% income tax + 20% "invisible" tax from losing the PA = **60%**. **The maths:** On £110,000 income: you've lost £5,000 of your PA. That £5,000 of income that was tax-free now costs you an extra 20% tax = £1,000. Plus you pay 40% on the £10,000 above £100,000 = £4,000. Total extra tax on that £10,000 = £5,000 = 50% effective rate — and on the marginal £2 of income, the rate is 60%. **Strategies to escape the trap:** **1. Pension contributions (most effective):** - Make a personal pension contribution (SIPP) — this reduces your **adjusted net income** pound for pound - Example: income £110,000; contribute £10,000 to SIPP; ANI drops to £100,000; full PA restored; tax saving ~£5,028 - Salary sacrifice with employer achieves the same result and also saves NI **2. Gift Aid donations:** - Grossed-up Gift Aid donations (donation × 100/80) reduce your adjusted net income - A £8,000 cash donation = £10,000 gross Gift Aid — reduces ANI by £10,000 **3. Charitable giving:** - Gifts of shares or land to charity reduce ANI directly **Worked example at £110,000:** | Without planning | With £10,000 SIPP | Saving | |---|---|---| | PA £7,570 (reduced) | PA £12,570 (full) | +£5,000 PA | | Extra IT ≈ £5,028 | — | **£5,028 saved** | **Important:** Pension contributions are subject to the **Annual Allowance** (£60,000 in 2026/27) and earnings cap — you cannot contribute more than 100% of your earnings.

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