What is the £100k tax trap?

The £100k tax trap refers to the income band between £100,000 and £125,140 where the UK Personal Allowance is gradually withdrawn at a rate of £1 for every £2 earned. This creates an effective marginal tax rate of around 60-62% on income within this band, making it one of the highest tax rates in the UK system.

Why is the effective tax rate 60% between £100k and £125,140?

In this income band you pay 40% income tax on the extra earnings, plus you lose £1 of Personal Allowance for every £2 earned — which means an additional 20% tax on the allowance lost. Combined with 2% National Insurance, the total effective marginal rate reaches approximately 62%.

How does salary sacrifice help with the £100k tax trap?

Salary sacrifice reduces your adjusted net income — the figure used to calculate Personal Allowance. By sacrificing enough salary into your pension to bring your income below £100,000, you can restore your full £12,570 Personal Allowance and escape the 60-62% marginal tax rate. The pension contribution costs you less in take-home pay than you might expect because of the tax saving.

What is the Personal Allowance taper for 2026/27?

For the 2026/27 tax year the Personal Allowance is £12,570. It reduces by £1 for every £2 your adjusted net income exceeds £100,000. It reaches zero at £125,140. This taper applies across England, Wales and Northern Ireland.

£100k Tax Trap Calculator UK 2026/27

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After income tax & NI

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Income tax + NI

What if you put more into your pension?

Drag to model putting more into your pension

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📊 Tax Breakdown

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Understanding Your Position

Key things to know about the £100k tax trap and your options

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Why is the effective rate 62%?

Above £100,000, for every £2 you earn, HMRC removes £1 of your Personal Allowance — the income that would otherwise be tax-free.

On income in the taper zone you effectively pay:

40% income tax on the income itself
20% from the lost allowance (also taxed at 40%)
2% National Insurance

This continues until £125,140, where the allowance is fully removed. Note: Scottish taxpayers face different rates — this calculator uses England, Wales and Northern Ireland rates only.

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What you gain by getting below £100,000

Reducing your adjusted net income below £100,000 — through pension contributions, Gift Aid, or other allowable deductions — restores more than just your tax allowance:

Full £12,570 Personal Allowance restored — saving up to £5,028/year in income tax
Tax-free childcare eligibility restored — worth up to £2,000 per child per year
30 free hours childcare for 3 and 4-year-olds restored (lost above £100k)
Every £1 put into your pension in the trap zone costs only ~38p in take-home pay

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Things to be aware of

Pension annual allowance is £60,000 for 2026/27 — contributions above this may trigger a tax charge unless carry-forward applies
Pension funds are locked until age 57 (rising from 55 in April 2028) — money put into your pension is not accessible until then
Bonuses, commissions and restricted stock units (RSUs) can push you into the trap unexpectedly — RSUs are company shares that vest over time and are treated as income by HMRC in the year they vest, even if you didn't choose the timing. Worth reviewing your projected income before each vesting date or bonus payment.
Mortgage affordability — lenders may use your post-contribution contractual salary, which could reduce what you can borrow
Statutory pay (maternity, paternity, sick pay) is based on earnings after pension contributions and may be lower

For advice tailored to your circumstances, speak to a qualified financial adviser or tax specialist.

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What people in this situation often do

Put the bonus into your pension, not just salary
Those with variable pay — bonuses, commissions, or vesting restricted stock units (RSUs, company shares that count as income when they vest) — often direct it straight into their pension to avoid being pushed deeper into the trap. Worth planning ahead of each payment date rather than reacting after the event.

Review at the start of each tax year
Before pay rises and bonuses are confirmed, a quick review of projected adjusted net income lets you set the right pension contribution level. Small adjustments in April avoid a large correction later in the year.

Approach varies by life stage
Those in their 30s and 40s often prioritise getting below £100,000 to protect childcare entitlements and accept the pension lock-in. Those closer to retirement (50s+) sometimes balance pension contributions with ISA savings — pension is more tax-efficient, but ISAs remain accessible before 57.

A pay rise can feel like punishment
Many people discover the trap when a salary increase or bonus leaves their take-home barely changed. That frustration is valid — and putting more into your pension is one of the most effective ways to address it.

What you put in
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The £100k Tax Trap — Understand What It Really Costs You

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Your position in the taper zone

Understanding Your Position