The 60% tax trap: how the £100,000 Personal Allowance taper works

How does the Personal Allowance taper work above £100,000?

Your Personal Allowance shrinks by £1 for every £2 of adjusted net income above £100,000, and it is gone completely at £125,140. According to GOV.UK's Income Tax rates page, the standard Personal Allowance for the tax year running from 6 April 2026 to 5 April 2027 is £12,570, and "your personal allowance goes down by £1 for every £2 that your adjusted net income is above £100,000". The rule comes from section 35 of the Income Tax Act 2007.

Adjusted net income is not the same as salary. According to HMRC's adjusted net income guidance, it is your total taxable income before allowances, less certain reliefs such as pension contributions paid under relief at source and Gift Aid donations, each grossed up by £1.25 for every £1 you pay. Salary you give up through salary sacrifice never counts as income in the first place, which is why it works so well here.

The taper reduces only the Personal Allowance. Blind Person's Allowance is a separate allowance under section 38 of the same Act, so it is not tapered.

Why the effective rate is 60%, or 62% with National Insurance

Each £2 you earn between £100,000 and £125,140 costs £1.20 in Income Tax, which is an effective rate of 60%. The £2 itself is taxed at the 40% higher rate, which is 80p. It also removes £1 of Personal Allowance, so £1 of income that was tax-free is now taxed at 40%, which adds another 40p.

Employee National Insurance adds 2 percentage points. According to GOV.UK, employees pay 8% on earnings from £242 to £967 a week and 2% on earnings over £967 a week (£4,189 a month), so every pound in this band also loses 2p. That makes the marginal tax rate 62%, and you keep 38p of each extra pound.

Scottish taxpayers are hit harder. According to GOV.UK, the Scottish advanced rate is 45% on income from £75,001 to £125,140, so the taper gives an effective Income Tax rate of 67.5%, or 69.5% with National Insurance. Run through our salary engine, a Scottish taxpayer going from £100,000 to £110,000 keeps £3,050 of the £10,000, which is 30.5%.

Above £125,140 the trap ends. The allowance is already zero, so the next pound is taxed at the 45% additional rate plus 2% National Insurance, a marginal rate of 47%. That is lower than the 62% just below it.

Worked examples: take-home pay at £105,000, £110,000 and £125,140

A salary of £110,000 takes home £72,357.40 a year in 2026/27, which is £3,800 more than a salary of £100,000 despite the £10,000 extra gross pay. The figures below come from the engine behind our UK salary take-home calculator, using these inputs: tax year 2026/27, England, no pension contribution, no student loan, standard tax code.

£105,000

The first £5,000 over £100,000 removes £2,500 of allowance, leaving £10,070. Income Tax rises by £3,000 and National Insurance by £100, so take-home rises by £1,900. You keep 38% of the extra £5,000.

£110,000

The allowance falls to £7,570. Income Tax is £6,000 higher than at £100,000, which is exactly 60% of the extra £10,000, and National Insurance takes another £200. Take-home rises by £3,800.

£125,140

The allowance is zero. Across the whole band of £25,140, Income Tax rises by £15,084 (60%) and National Insurance by £502.80 (2%). Take-home rises by £9,553.20, so £15,586.80 of the £25,140 goes in deductions.

You can reproduce any of these rows by entering the salary in the take-home pay calculator with the tax year set to 2026/27.

How salary sacrifice gets your income back under £100,000

Salary sacrifice pension contributions reduce your salary before tax, so sacrificing everything above £100,000 restores the full Personal Allowance. According to HMRC's guidance on salary sacrifice (updated 6 April 2026), only the reduced salary is subject to tax and National Insurance, and a sacrifice into a registered pension scheme means "no employment income tax or National Insurance contributions charge to the employee".

Worked example: £110,000 salary, £10,000 sacrificed

Using the same engine with salary £110,000, pension method salary sacrifice and a fixed contribution of £10,000 a year:

• Pay for tax and National Insurance falls to £100,000, and the Personal Allowance goes back to £12,570.
• Income Tax is £27,432 and National Insurance £4,010.60, the same as on a £100,000 salary.
• Take-home pay is £68,557.40, which is £3,800 less than without the sacrifice.
• Your pension receives £10,000.

So £10,000 goes into your pension for a £3,800 drop in take-home pay. The other £6,200 is tax and National Insurance you no longer pay, which works out at 62% relief.

The same approach works across the whole band. On £125,140, sacrificing £25,140 brings take-home down from £78,110.60 to £68,557.40, a cost of £9,553.20 for £25,140 in your pension. On £105,000, sacrificing £5,000 costs £1,900.

Other ways to lower adjusted net income

• Personal pension contributions (relief at source). According to HMRC, each £1 you pay reduces adjusted net income by £1.25. Paying £8,000 into a personal pension, which the provider tops up to £10,000, lowers adjusted net income by £10,000. You claim the extra relief through Self Assessment or, if you do not file a return, through HMRC's online claim service, which adjusts your tax code.
• Gift Aid donations. These also reduce adjusted net income by £1.25 for each £1 given.
• Bonus sacrifice. GOV.UK's April 2029 policy paper describes salary sacrifice as reducing your gross salary or sacrificing a bonus. If your employer offers it, a bonus that would push you into the band can go into your pension instead.

A salary sacrifice cannot take your cash pay below the National Minimum Wage, according to the same HMRC guidance. At £100,000 that limit is far away, but it matters if you sacrifice a large share of a part-year salary.

What changes in April 2029: the £2,000 National Insurance limit

From April 2029 only the first £2,000 a year of employee pension contributions made through salary sacrifice will be free of National Insurance. According to the GOV.UK policy paper published on 26 November 2025, contributions through salary sacrifice "will still be exempt from Income Tax (subject to the usual limits)", so sacrifice will still restore your Personal Allowance.

The change removes some of the National Insurance saving. At today's 2% upper rate, a £10,000 sacrifice would attract 2% on the £8,000 above the limit, which is £160 a year. The Income Tax saving of £6,000 in the £110,000 example is unaffected. The rates that will apply in 2029/30 have not been published, so treat the £160 as an estimate at current rates.

Childcare support you lose above £100,000 of adjusted net income

Going £1 over £100,000 of adjusted net income ends your household's Tax-Free Childcare and 30 hours of funded childcare in England. Unlike the tax taper, this is a cliff edge, not a gradual loss.

Tax-Free Childcare

According to GOV.UK, the government adds £2 for every £8 you pay into a childcare account, up to £500 every 3 months per child (£2,000 a year), or £1,000 every 3 months (£4,000 a year) for a disabled child. You are not eligible if "you or your partner's expected adjusted net income" is over £100,000 for the current tax year. Children qualify until the September after they turn 11, or 16 if disabled.

Free Childcare for Working Parents (England)

According to GOV.UK, working parents in England with a child aged 9 months to 4 years can get 30 hours of free childcare a week for 38 weeks of the year. The same £100,000 test applies to you and your partner. Children aged 3 and 4 in England still get the universal 15 hours a week whatever your income. Scotland, Wales and Northern Ireland run different schemes.

Worked example: £101,000 with two children

A parent earning £101,000 with two children in paid childcare could lose up to £4,000 a year of Tax-Free Childcare top-ups. Using the salary engine, sacrificing £1,000 into a pension brings adjusted net income to £100,000 and reduces take-home pay from £68,937.40 to £68,557.40, a cost of £380. The household keeps its eligibility, and the £1,000 goes into the pension.

Both schemes ask you to reconfirm your details every 3 months, and the test is your expected income for the current tax year. A pay rise or bonus part-way through the year can change the answer, so check before you reconfirm.

What happens at each income threshold from £50,270 to £125,140

Several UK thresholds sit between £50,270 and £125,140, and all of them except the higher rate use adjusted net income. This table shows what starts or stops at each one in 2026/27.

By the time you reach £100,000, any High Income Child Benefit Charge has already taken back all of your Child Benefit, so a family earning £105,000 faces the tax taper and the childcare cliff at once.

How a pay rise or bonus into the band is taxed

A pay rise that lands between £100,000 and £125,140 is taxed at the same 62% as any other income in the band, so a £10,000 rise from £100,000 adds £3,800 to take-home pay. The pay rise calculator shows this split with current salary £100,000, a rise of £10,000 and no pension: 38% of the rise is kept, and the tool flags that all £10,000 falls in the taper band.

A bonus is employment income, so it counts towards adjusted net income in the same way as salary. A £10,000 bonus on a £100,000 salary leaves you with the same £3,800 as the pay rise above. Sacrificing the bonus into your pension, where your employer allows it, keeps the whole £10,000 working for you.

If your employer does not offer salary sacrifice, check your tax code in HMRC's Check your Income Tax online service, which shows your Personal Allowance and tax code. A code that still gives the full £12,570 on income over £100,000 takes too little tax, and HMRC usually collects the shortfall by changing your tax code in a later year.