Answers · UK 2025/26
What is the 60% tax trap UK?
Between £100,000 and £125,140 the UK has an effective 60% marginal Income Tax rate. This occurs because your Personal Allowance is reduced by £1 for every £2 earned above £100,000 — so you lose £1 of tax-free allowance on top of paying 40% tax, creating a 60% effective marginal rate on that slice.
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Mechanics: above £100,000, the standard £12,570 Personal Allowance tapers at £1 for every £2 of income, reaching zero at £125,140. On each £2 extra you earn above £100,000, HMRC charges 40% on that £2 (= 80p) AND the lost £1 of allowance is now taxed at 40% (another 40p). Total tax on £2 = £1.20, making the effective rate 60%. Example: earning £101,000 vs £100,000 means the extra £1,000 generates £600 additional tax (compared with £400 at the standard 40% higher rate). Solutions: (1) increase pension contributions to bring adjusted net income to £100,000 or below — the pension pot grows at no marginal tax cost; (2) Gift Aid donations also reduce adjusted net income; (3) salary sacrifice into approved employer schemes. Tax codes: if you enter this band mid-year, HMRC adjusts your tax code to claw back the PA reduction — you may see a 0T or D0 code temporarily.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.