If you earn between £100,000 and £125,140, you could be paying a hidden
60% income tax rate — more than someone earning £150,000. Here is
everything you need to know, and how to avoid it.
Everyone in the UK receives a £12,570 tax-free Personal Allowance. But once your income exceeds £100,000, HMRC withdraws that allowance at a rate of £1 for every £2 you earn above the threshold. By the time you reach £125,140 your entire allowance has been removed.
This withdrawal is not labelled as a tax rate, but mathematically it creates an effective 60% income tax charge on every pound earned inside that band. Add 2% National Insurance and you keep just 38 pence from each additional pound — less than a higher-rate taxpayer at £90,000 or an additional-rate taxpayer at £150,000. HMRC data confirms that almost 725,000 workers now fall squarely within this band in 2025/26, with 1.95 million losing some or all of their Personal Allowance. That figure is projected to reach 2.29 million by 2028/29.
If you earn over £125,140, you lose your entire personal allowance, but at least you're only paying 40% tax on earnings up to £150,000 (then 45% above).
Your tax-free allowance evaporates as income crosses £100,000
For every £2 you earn above £100,000, you lose £1 of your Personal Allowance. At £125,140 the entire £12,570 allowance has been withdrawn, resulting in an effective 60% marginal tax rate across the entire band.
Let's look at a practical example to understand the mechanics
Your income is £10,000 over the £100,000 threshold. Your personal allowance is reduced by £5,000 (£10,000 ÷ 2), leaving you with £7,570 of personal allowance instead of the full £12,570.
You pay 40% tax on the £10,000 earned between £100,000 and £110,000. That's £4,000 in tax.
You also pay 40% tax on the £5,000 of personal allowance you've lost. That's an additional £2,000 in tax.
Total tax on that £10,000 is £6,000 (£4,000 + £2,000), which equals 60% of your additional earnings.
For every £1 you earn between £100,000 and £125,140, you only keep 40p after tax. This makes it one of the highest marginal tax rates in the UK tax system – higher than the 45% additional rate that applies to earnings over £150,000.
The 60% tax trap particularly impacts certain professional groups
Senior doctors with clinical excellence awards or additional private practice income often find themselves in this bracket.
Those whose income places them towards the upper end of the higher-rate or additional-rate tax bands.
Entrepreneurs and business owners who may have variable income or dividends that push them into this tax band.
There are several legitimate ways to reduce your exposure to this punitive tax rate
Making additional pension contributions is often the most tax-efficient way to reduce your adjusted net income below £100,000. Every £1 you contribute to your pension reduces your taxable income, potentially saving you 60p in tax.
This is particularly effective for those with final salary or defined benefit pensions, where you can make additional voluntary contributions (AVCs) or purchase added years of service.
Salary sacrifice schemes allow you to exchange part of your salary for non-cash benefits, reducing your gross income. Common options include additional pension contributions, childcare vouchers (if grandfathered), or cycle to work schemes.
This reduces your adjusted net income and can also save on National Insurance contributions, providing additional tax savings.
Making charitable donations through Gift Aid extends your basic rate tax band. For higher rate taxpayers, you can claim back the difference between the higher rate (40%) and basic rate (20%) of tax on your donation.
This effectively reduces your adjusted net income while supporting causes you care about.
If you have a spouse or civil partner with lower income, consider income splitting strategies. This might include transferring income-generating assets or involving your partner in a business.
Be aware that HMRC has specific rules around income splitting, particularly the settlements legislation, so professional advice is essential.
The 60% tax trap is complex, and the optimal solution varies depending on your individual circumstances. What works for one person may not be suitable for another.
At Wealth Genius, we specialise in helping professionals – particularly those in the NHS and education sectors – navigate these tax complexities. We can help you:
Don't let the 60% tax trap erode your hard-earned income. Contact us today for a personalised tax planning consultation.
Earning between £100,000 and £125,140 results in an effective 60% marginal tax rate due to personal allowance withdrawal.
Increasing pension contributions is often the most effective way to reduce your adjusted net income and avoid the trap.
Salary sacrifice, charitable donations, and income splitting can all help reduce exposure to the 60% rate.
The optimal solution depends on your individual circumstances - professional guidance ensures you make the right choices.
