What is the 60% tax trap?
For most people, UK income tax has three rates: 20% on income up to £50,270, 40% from there to £125,140, and 45% above that. But there's a hidden fourth rate that catches people earning between £100,000 and £125,140, and it's commonly called 60%.
The 60% rate isn't on the HMRC rate card. It's the result of how the personal allowance interacts with the higher rate band. Once your income crosses £100,000, your tax free personal allowance starts shrinking by £1 for every £2 you earn above the threshold. That loss of allowance is itself a kind of tax, and it stacks on top of the 40% you're already paying.
The maths in detail
The personal allowance for 2026/27 is £12,570. Earning under £100,000, that £12,570 is tax free. Earning above £100,000, you lose £1 of personal allowance for every £2 over. By £125,140, the entire allowance is gone.
So consider an extra £1 of income earned at £105,000:
- That £1 itself is taxed at the 40% higher rate. Cost: 40p.
- You also lose 50p of personal allowance, because you only lose 1 for every 2.
- That 50p of newly exposed allowance is now taxed at 40%. Cost: 20p.
- National Insurance on the £1 is 2% (you're above the upper earnings limit). Cost: 2p.
Total in this employee example: 62p of tax and NI on every extra £1 earned. The common name comes from the 60% income tax effect before employee NI.
Who falls into the trap?
Anyone with adjusted net income between £100,000 and £125,140 is in the trap. That's not just salary, it includes bonuses, dividends, rental income, savings interest, and investment income. Once you hit £125,140 the allowance is fully withdrawn and your marginal rate drops back to 47% (45% additional rate plus 2% NI), which is, perversely, a lower marginal rate than the trap.
The trap also catches you if a one off event pushes you above £100,000 in a single year, a property sale, a big bonus, vested stock options, an inheritance distribution, a tax year where multiple income sources stack. People often don't see it coming because their salary alone is below the threshold.
The escape: contributing to a pension
A pension contribution reduces your adjusted net income, which is the number HMRC uses to decide whether you've crossed £100,000. Sacrifice enough to bring your adjusted net income back below £100,000 and you reverse the taper, recover the full personal allowance, and avoid the 60% income tax effect on pounds contributed in the trap zone.
That means a pension contribution made specifically to escape the trap is one of the most tax efficient moves available in the UK system if your employer offers it. £1 sacrificed in a standard employee trap zone example can cost about 38p of net pay because tax, NI and allowance taper costs are avoided. That same £1 then sits in your pension.
Other levers
Pension salary sacrifice is the headline tool, but it's not the only one. Other ways to reduce adjusted net income include:
- Gift Aid donations. Higher rate Gift Aid extends your basic rate band, which has the same effect as a pension contribution on adjusted net income for the taper test.
- Charitable giving via payroll or share donations also reduces adjusted net income.
- Cycle to work and EV salary sacrifice schemes reduce gross salary in the same way pension salary sacrifice does, with the bonus that the benefit in kind tax on EVs is currently very low.
- Timing income across tax years. If you control when bonuses or consulting income land, splitting receipts across two tax years can keep both years below the threshold.
Watch-outs
- The pension annual allowance is £60,000 across all your pensions. If you've already maxed it elsewhere, you can't sacrifice more without a tax charge, though you may be able to carry forward unused allowance from the past three years.
- Salary sacrifice can't push pay below the National Minimum Wage. Not usually an issue at trap zone incomes, but worth knowing. See the minimum wage guide.
- Salary sacrifice lowers your gross salary on paper, which can affect mortgage applications, statutory maternity / paternity pay, and student loan repayments. Not a reason to avoid it, but factor it in if any of those are imminent.
- Tax free childcare and free childcare hours have a £100,000 income cliff.Crossing it costs eligible families thousands. Pension contributions to bring income below £100k restore eligibility, another lever the trap creates.
Bottom line
The 60% trap is real and expensive, but there are several adjusted net income levers. If you're earning between £100k and £125k, every pound you contribute to a pension within the trap zone costs you about 38p of take home pay in a standard salary sacrifice employee example and parks the rest in your retirement savings. Salary sacrifice depends on employer scheme rules and can affect payslip salary, mortgage affordability, statutory pay and some benefits.
Use the income tax calculator to see exactly how much of your salary lands in the trap, and the pension salary sacrifice optimiser to model how much it would cost to reduce it. Use the adjusted net income calculator for Gift Aid, personal pension and Child Benefit threshold planning.