· 3 min read
The £100,000 tax trap in 2026/27 and how to get out of it
Between £100,000 and £125,140 you lose your tax-free allowance and pay an effective 60% rate, 67.5% in Scotland. Here is what it costs and how to fix it.
Earn between £100,000 and £125,140 and the tax system behaves strangely. Your tax-free Personal Allowance of £12,570 shrinks by £1 for every £2 of adjusted net income over £100,000, and it has gone completely by £125,140. The result is an effective income tax rate of 60% on that slice of income in England, Wales and Northern Ireland.
How the 60% rate arises
Every extra £1 you earn in this band is taxed at 40%. It also removes 50p of your allowance, and that 50p is then taxed at 40% too. That adds another 20p, so £1 of pay costs 60p in income tax. Add 2% employee National Insurance and you keep 38p.
| Salary | Income tax 2026/27 | Take-home pay |
|---|---|---|
| £100,000 | £27,432 | £68,557.96 |
| £110,000 | £33,432 | £72,358.04 |
| £125,140 | £42,516 | £78,111.16 |
Going from £100,000 to £125,140 adds £25,140 of salary and £9,549.60 of take-home pay. That is 38% of the rise.
In Scotland the same mechanism sits on top of the 45% advanced rate, so the effective rate in this band is 67.5%. Income tax on a Scottish salary rises from £30,732.05 at £100,000 to £47,701.55 at £125,140.
Why it catches more people every year
The £100,000 threshold has not moved since the taper was introduced in April 2010. The Budget 2025 also kept the Personal Allowance and higher rate threshold frozen until April 2031. Pay rises carry more people over the line each year without any change in the rules.
The childcare cliff edge
For parents, £100,000 is also a hard cut-off for childcare help. If either parent has adjusted net income over £100,000, the family loses Tax-Free Childcare (worth up to £2,000 per child a year) and funded childcare hours. One pound over the line can cost thousands.
The fixes
The trap is measured on adjusted net income, and pension contributions reduce it. That makes the 60% band one of the most valuable places to pay into a pension.
Salary sacrifice. Someone on £110,000 who sacrifices £10,000 into their workplace pension brings their taxable pay to £100,000 and gets their full allowance back. Their take-home pay falls by only £3,800.08 while £10,000 goes into the pension. Each £1 in the pension costs them 38p.
A personal pension (SIPP). Paying £8,000 into a SIPP becomes a £10,000 contribution once the provider adds basic rate relief. That brings the same £110,000 earner's adjusted net income to £100,000. The rest of the relief, £4,000, comes back through Self Assessment, so check you claim it.
Bonus sacrifice and Gift Aid. Sacrificing a bonus into a pension works the same way, and Gift Aid donations also reduce adjusted net income.
A few things to keep in mind:
- The pension annual allowance is £60,000, including employer contributions. Unused allowance from the previous three years can be carried forward.
- From April 2029, pension salary sacrifice above £2,000 a year will attract National Insurance. For the £10,000 example, on today's thresholds that adds about £160 a year in employee NI. Income tax relief, and the allowance it restores, are unaffected.
- Money in a pension is locked away until the minimum pension age, which rises to 57 in April 2028.
What to do now
- Work out your adjusted net income: total taxable income, minus gross personal pension contributions and grossed-up Gift Aid.
- If it lands between £100,000 and £125,140, find the contribution that brings it to £100,000. Our 60% tax trap calculator does this and shows the real cost.
- If you pay into a relief-at-source pension or a SIPP, claim the extra relief through Self Assessment or by contacting HMRC.
- Parents near the line should check childcare eligibility before the next reconfirmation date.