Tax Over £100k: The 60% Tax Trap
How the Personal Allowance taper creates an effective 60% marginal tax rate between £100,000 and £125,140, and the ways to reduce it.
In one sentence
Earning over £100,000 in the UK reduces your £12,570 Personal Allowance by £1 for every £2 of income, creating an effective 60% marginal Income Tax rate up to £125,140.
Quick answer
- Personal allowance tapers by £1 for every £2 of income over £100,000
- Creates an effective 60% Income Tax rate (62% with NI) between £100k and £125,140
- Your Personal Allowance is zero from £125,140
- Triggers loss of Tax-Free Childcare and 30 hours free childcare eligibility
- Reduced by pension contributions, Gift Aid, or dividend timing for directors
Do you lose your personal allowance over £100,000?
Yes. For 2026/27, your £12,570 Personal Allowance falls by £1 for every £2 of adjusted net income above £100,000. It reaches zero at £125,140. Between those two figures you pay an effective 60% Income Tax rate (62% with National Insurance).
There is no separate "£100k tax bracket". The higher rate of 40% starts at £50,271 and runs to £125,140, and the 45% additional rate applies above that. The 60% rate is the effect of losing allowance while you are already paying 40%.
How to calculate your personal allowance over £100k
Take your adjusted net income, subtract £100,000, halve the result and take that away from £12,570. If the answer is below zero, your allowance is zero.
Example: adjusted net income of £112,000. The excess is £12,000, half is £6,000, so your Personal Allowance is £12,570 - £6,000 = £6,570.
| Adjusted net income | Personal Allowance | Income Tax (England, Wales, NI) |
|---|---|---|
| £100,000 | £12,570 | £27,432 |
| £110,000 | £7,570 | £33,432 |
| £120,000 | £2,570 | £39,432 |
| £125,140 | £0 | £42,516 |
Income Tax on earnings only, with a 20% band of £37,700 and 40% above it. Scottish Income Tax bands differ, but the allowance taper works the same way.
What counts as adjusted net income?
It is your total taxable income (salary, profits, rental profit, interest, dividends) before the Personal Allowance, minus the gross amount of any pension contributions you make under relief at source and any Gift Aid donations. Pension contributions taken through your salary reduce your pay before it reaches the figure. Dividends count in full, which matters if you run a company.
Why the maths creates a 60% marginal tax rate
Many taxpayers expect to pay the 40% higher rate on income over £50,270. However, between £100,000 and £125,140, two tax effects happen at the exact same time:
- 40% Income Tax: You pay 40% tax directly on the extra £1 earned.
- 20% Lost Allowance Tax: Losing 50p of Personal Allowance exposes an extra 50p of income to 40% tax, adding an extra 20p of tax for every £1 earned.
Combined, you pay 60p in Income Tax on every £1 earned in that band. When you add 2% Class 1 National Insurance (for employees) or 2% Class 4 National Insurance (for sole traders), the combined deduction is 62%.
Worked example: salary increase from £100,000 to £110,000
| Income tier | Gross income | Personal allowance | Taxable income | Total Income Tax |
|---|---|---|---|---|
| At £100,000 | £100,000 | £12,570 | £87,430 | £27,432 |
| At £110,000 | £110,000 | £7,570 | £102,430 | £33,432 |
| Difference on extra £10k | +£10,000 | -£5,000 | +£15,000 | +£6,000 (60%) |
Note: Figures exclude National Insurance deductions and student loan repayments, which increase the total marginal deduction further.
Tax implications of earning over £100k: other costs
The taper is not the only effect of crossing £100,000 of adjusted net income.
- Tax-Free Childcare: you cannot get it if either parent has adjusted net income over £100,000. It is worth up to £2,000 a year per child.
- Free childcare hours: the 30 hours scheme has the same £100,000 limit for each parent, so earning £100,001 instead of £99,999 can cost a family thousands.
- Child Benefit: the High Income Child Benefit Charge starts at £60,000 and takes back all of the benefit at £80,000, so at £100,000 you repay all of it.
- Savings allowance: the Personal Savings Allowance is £500 for higher-rate taxpayers and nil for additional-rate taxpayers (over £125,140).
- Tax return: income over £100,000 is not a reason on its own to file a Self Assessment return. You will usually need one if you have untaxed income, self-employed income over £1,000, rental income or the High Income Child Benefit Charge to pay through Self Assessment.
Tax tips for income over £100k: four legitimate ways to reduce the trap
Because the taper is based on adjusted net income, anything that lowers that figure back towards £100,000 is worth costing out.
1. Pension contributions
Employer salary sacrifice cuts your pay before tax. Personal contributions to a SIPP or personal pension get basic-rate relief at source and extend your basic-rate band, and they reduce adjusted net income by the gross amount. Annual allowance rules apply: £60,000 for most people in 2026/27, with a tapered allowance at very high incomes.
2. Gift Aid donations
The gross value of Gift Aid donations (the amount plus the 25% charities reclaim) comes off adjusted net income and extends your basic-rate band. You get the extra relief through your return or tax code.
3. Dividend timing for company directors
Dividends count towards adjusted net income and above £50,270 are taxed at 35.75% in 2026/27. If you do not need the cash, leaving profits in the company, or paying an employer pension contribution, keeps your personal income lower. Corporation Tax then applies in the company.
4. Benefits such as an electric company car
A salary-sacrifice electric car lowers your cash pay, but the car creates a Benefit-in-Kind charge that is taxable, at a low percentage for electric cars. Compare the net effect before you commit.
Income splitting through a spouse's shares needs care. The settlements rules can tax the income back on you in some cases, so take advice first.
Worked example: £10,000 into a pension at £110,000
| Route | What you pay | Tax saved | Cost of £10,000 pension |
|---|---|---|---|
| Salary sacrifice (ignoring NI) | £10,000 less pay | £6,000 (60%) | £4,000 |
| Personal contribution (gross £10,000) | £8,000 to the provider, which adds £2,000 | £2,000 added at source plus £4,000 through your tax return | £4,000 |
With salary sacrifice you also save 2% Class 1 National Insurance on the sacrificed amount, so the cost falls to about £3,800. Check the figures against your own tax code and employer scheme.
Common mistakes with the £100k taper
- Assuming the taper starts at taxable income. It starts at adjusted net income, which is measured before the allowance.
- Forgetting that dividends, rental profit and interest count towards the £100,000 as well as salary.
- Claiming pension relief at source but never claiming the extra higher-rate relief.
- Not checking the tax code. If your allowance is reduced, your code should reflect it, or you may owe tax after the year ends.
- Missing the childcare cliff-edge at exactly £100,000 when family benefits are at stake.
Self Assessment and tax codes for high earners
Check that your tax code reflects the reduced Personal Allowance, so the right tax is collected during the year. Read our guide to UK tax thresholds for 2026/27 or see how our Self Assessment service handles high-earner returns. If you are a director, see Self Assessment for directors.
Earning near or over £100,000?
Book a 30-minute consultation with a senior UK tax accountant. We will review your adjusted net income, pension relief, and tax extraction plan to ensure you do not pay unnecessary tax.
Book a call →Frequently asked questions
How much is £100,000 after tax in the UK?
For an employee in England, Wales or Northern Ireland in 2026/27 with no pension contributions or student loan, a £100,000 salary leaves about £68,557 a year, or about £5,713 a month. Income Tax is £27,432: the £12,570 Personal Allowance is still intact at £100,000, so 20% applies to the first £37,700 of taxable income and 40% to the rest. Employee Class 1 National Insurance is about £4,011: 8% on earnings between £12,570 and £50,270 and 2% above that. Scottish Income Tax bands differ, and pension contributions, a student loan or benefits in kind change the figure.
Do you lose your tax-free allowance over £100,000?
Yes, gradually. Your £12,570 Personal Allowance is reduced by £1 for every £2 that your adjusted net income is above £100,000, and it is zero at £125,140 or above. Someone with adjusted net income of £110,000 has a Personal Allowance of £7,570.
How do I calculate personal allowance over £100k?
Subtract £100,000 from your adjusted net income, halve the result and subtract it from £12,570. For adjusted net income of £112,000 the reduction is £6,000, leaving a Personal Allowance of £6,570. If the result is below zero, your allowance is nil.
Why is the effective rate 60% between £100k and £125,140?
You pay 40% on each extra pound, and each extra £2 of income removes £1 of allowance, which puts £1 more into the 40% band. That adds 20p of tax for every extra £1 earned, so 60p in total. Add 2% National Insurance and the deduction is 62%.
How can I reduce tax if I earn over £100k?
Lower your adjusted net income. Pension contributions (including salary sacrifice) and Gift Aid donations are the usual routes, and company directors can control how much they take as dividends. A £10,000 pension contribution at £110,000 income typically costs about £4,000 after tax relief.
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