The £100k Tax Trap 2025/26: Why Earning More Can Cost You 60%

Quick answer

The "£100k tax trap" is shorthand for the personal allowance taper that applies between £100,000 and £125,140 of adjusted net income. In this band:

• Standard income tax: 40% on the income.
• Personal allowance loss: £1 lost for every £2 earned above £100k — equivalent to an extra 20% tax.
• Total effective income tax: 60%.
• Plus employee NI: 2% above the upper earnings limit.
• Combined marginal rate: 62%.

So every £100 of extra gross pay in this band gives you only £38 of extra take-home. It's the most punitive tax band in the UK — worse than the top 45% additional rate that kicks in above £125,140.

How the taper actually works

The personal allowance for 2025/26 is £12,570. The rule (set by the Finance Act 2010, unchanged in subsequent Budgets including Spring 2026):

Your personal allowance is reduced by £1 for every £2 your adjusted net income exceeds £100,000. At £125,140 your personal allowance is £0.

"Adjusted net income" is your total taxable income minus grossed-up pension contributions and Gift Aid. So the figure you can influence is not your salary; it's the net-of-allowances number.

Worked example — Priya, £120,000 salary, £10,000 bonus

Without any pension action:

• Adjusted income: £130,000.
• Personal allowance: £0.
• Tax on full income (no allowance):
  • £37,700 at basic 20% = £7,540
  • £87,440 at higher 40% = £34,976
  • £4,860 at additional 45% = £2,187
  • Total income tax: £44,703
• NI: roughly £6,400.
• Net take-home: ~£78,900 out of £130,000 gross.

On the £10,000 bonus alone, marginal calculation:

• Income tax @ 60% effective (PA taper): £6,000.
• Employee NI @ 2%: £200.
• Net keep from bonus: £3,800.

With £10,000 pension salary sacrifice on the bonus:

• Adjusted income drops from £130,000 to £120,000.
• £2,500 of personal allowance restored.
• Net take-home goes back close to where it was before bonus.
• £10,000 added to pension pot.

The pension version creates £10,000 of real wealth in exchange for £3,800 of forgone net pay — a real cost of 38% per £1 of pension. Hard to beat anywhere else in the UK tax system.

The Scotland version — even worse

Scotland uses different bands. For someone with £105,000 of adjusted income in Scotland (2025/26 rates):

In the £100k-£125,140 Scotland band: 45% advanced + 20% (PA taper effect) + 2% NI = ~67% effective marginal rate.

For an English peer in the same income band: 60% + 2% NI = 62%.

A Scottish £110k earner therefore loses roughly £550 more tax on a £10,000 bonus than an English peer.

The non-tax cliffs at £100k

The taper isn't the only £100k cliff. Three more drop simultaneously:

1. Tax-Free Childcare. £100k cap. Cross it (either parent), lose up to £2,000/year per child.
2. 30-hour free childcare for 3-4 year olds. Same £100k cap per parent — losing it costs roughly £6,000-£10,000/year in private childcare in many regions.
3. 15-hour free childcare for 2-year-olds (working parents). Also £100k cap.

Hitting £100,001 with no offset can therefore cost a family with two pre-school kids in childcare £10,000-£20,000/year more in net real costs — far more than the 62% headline marginal tax rate.

How to legally drop below £100k

1. Pension salary sacrifice (the gold standard)

Salary sacrifice contributions reduce adjusted net income directly and avoid both income tax and NI. The limits:

• Annual pension allowance: £60,000 (2025/26) — your total pension input limit including employer contributions.
• Tapered annual allowance: kicks in if adjusted income > £260,000 (rare for trap-zone earners).
• Carry forward: up to 3 years of unused allowance from previous tax years (worth checking via your provider).

Worked example — Ben, £125,140 salary

Without action:

• Personal allowance: £0.
• Income tax: ~£42,516. NI: ~£6,107. Net: £76,517.

With £25,140 pension sacrifice (bringing adjusted income to £100,000):

• Salary after sacrifice: £100,000.
• Personal allowance: £12,570 (restored).
• Income tax: ~£27,432. NI: ~£5,605. Net: £66,963 cash.
• Plus £25,140 in pension.
• Net cost of £25,140 pension contribution: £9,554 (£76,517 - £66,963).
• Effective relief: 62%.

Ben pays £9,554 to get £25,140 into his pension — every £1 of pension contribution effectively costs 38p.

2. Personal pension contributions (not via salary sacrifice)

If your employer doesn't offer salary sacrifice, you can pay into a SIPP or personal pension out of net pay. You get:

• 20% basic-rate relief automatically added by the provider.
• Up to 25% additional relief via Self Assessment (40% + 20% for the taper).
• The PA restoration works identically — it uses adjusted net income.

Less efficient than salary sacrifice (you don't save employee or employer NI) but still very tax-favourable.

3. Gift Aid

Charitable donations under Gift Aid also reduce adjusted income for the taper calculation. Useful for one-off boosters near year-end if you don't want to lock up more in pension.

4. Bonus deferral / sacrifice

If your employer allows, defer a bonus to the next tax year if you'd cross the trap this year and not next. Bonus sacrifice into pension is the most powerful one-off action.

What NOT to do

• Don't reduce contracted hours just to drop below £100k unless the maths really works — usually the pension route beats it.
• Don't ignore the trap and assume HMRC will sort it. They will, but you'll owe big tax bills via Self Assessment with no opportunity to optimise.
• Don't double-count. Personal pension contributions out of net pay get 20% relief at source; you reclaim only the extra 20-25% via SA, not the full 40-45%.

Bonus pitfall — the company car / BIK

Salary-sacrificed BIK (EV cars are popular) reduces salary but adds taxable BIK value. The BIK still counts as taxable income for the £100k taper, so the EV sacrifice isn't a clean "drop below £100k" tool — calculate carefully.

A £55,000 EV with 3% BIK (2025/26) adds £1,650 to taxable income — small enough that EV sacrifice still nets out positive for most users, but worth modelling explicitly.

Try the numbers

Related reading:

• Bonus tax UK 2025/26 — why your £5,000 bonus feels like £2,500
• Salary Sacrifice UK Guide 2025/26
• 5 legal ways to reduce your UK income tax bill

Sources

• HMRC: Income Tax rates and Personal Allowances
• HMRC: Tax on your private pension contributions
• gov.uk: Personal allowance for high earners
• HMRC: Salary sacrifice and the effects on PAYE
• Scottish Government: Scottish Income Tax 2025-26