Officially, the UK’s top tax rates are 40% and 45%. But earn between £100,000 and £125,140 and every extra pound costs you 60p in Income Tax, plus 2p in National Insurance. That’s a higher marginal rate than anyone earning £1 million pays. It’s one of the most expensive quirks in the UK tax system, and one of the easiest to fix if you know it’s there.
How the trap works
Everyone gets a Personal Allowance of £12,570. But once your adjusted net income goes over £100,000, you lose £1 of allowance for every £2 you earn above that. By £125,140 the allowance has gone completely.
So between £100,000 and £125,140, each extra £2 you earn:
- is taxed at 40% itself: 80p
- and removes £1 of tax-free allowance, which is now taxed at 40%: another 40p
That’s £1.20 tax on every £2, an effective rate of 60%. Add 2% employee NI and you keep only 38p of each extra £1. With a Plan 2 student loan it drops to 29p.
What it costs in pounds
| Salary (England, 2026/27) | Personal Allowance | Income Tax | Take-home |
|---|---|---|---|
| £100,000 | £12,570 | £27,432 | £68,558 |
| £110,000 | £7,570 | £33,432 | £72,358 |
| £125,140 | £0 | £42,516 | £78,111 |
A £10,000 raise from £100,000 to £110,000 adds only £3,800 to take-home pay.
It gets worse with children
At exactly £100,000 of adjusted net income you also lose:
- Tax-Free Childcare, worth up to £2,000 per child per year (£4,000 for a disabled child)
- Funded childcare hours for working parents in England, worth thousands of pounds a year for each pre-school child
These are cliff edges, not tapers. Earn £1 over and you lose the lot. For a family with two young children, going from £99,999 to £100,001 can cost well over £10,000 a year.
What counts: adjusted net income
The taper and the childcare cliff both use adjusted net income (ANI), not your salary. Broadly:
ANI = total taxable income − pension contributions (grossed up) − Gift Aid donations (grossed up)
So the way out is to reduce ANI.
Escape route 1: salary sacrifice into a pension
If your employer offers salary sacrifice, you give up part of your salary in exchange for an employer pension contribution. Your taxable pay falls, and so does ANI.
On a £110,000 salary, sacrificing £10,000 brings ANI back to £100,000. That restores the full Personal Allowance and any childcare support. Take-home falls by only £3,800, while £10,000 goes into your pension. That’s an effective cost of about 38p per £1 invested.
From April 2029, salary sacrifice above £2,000 a year will attract NI, which makes it slightly less generous. It still beats taking the pay.
Escape route 2: personal pension contributions
Without salary sacrifice, you can pay into a personal pension or SIPP using relief at source. You pay 80% and the provider adds 20%. The gross contribution reduces ANI, and you claim the extra higher-rate relief through Self Assessment.
To bring £110,000 of ANI down to £100,000 you’d contribute £10,000 gross (£8,000 from your pocket). Once the higher-rate and taper relief is reclaimed, it costs you about £4,000.
Escape route 3: Gift Aid
Donations to charity under Gift Aid also reduce ANI by the grossed-up amount. It’s not a money-saver, since you’re giving the money away, but if you donate anyway, it works the same way.
Bonuses push people over
A bonus is often what tips income over £100,000. Many employers let you sacrifice a bonus into your pension before it’s paid. Check your scheme’s rules and deadlines; the decision usually has to be made before the bonus is awarded.
Check your own numbers
Our take-home pay calculator flags the taper and the childcare cliff automatically. It also shows the exact extra pension contribution needed to bring your adjusted net income back to £100,000. The pay rise calculator shows how much of a raise in this band you actually keep.
Why does the trap exist?
The allowance taper was introduced in April 2010 at £100,000, and the threshold has never been raised for inflation. As wages rise, more people are drawn in each year. With thresholds now frozen until 2031, that will continue. That’s why a pension strategy around £100,000 has become standard planning for professionals.
Common questions
Is the 60% tax rate real?
Yes, as an effective marginal rate. Between £100,000 and £125,140 each £1 earned costs 40p tax plus 20p from the lost allowance. Add 2% NI and you keep 38p.
Does a bonus count towards £100,000?
Yes. All taxable income counts, including bonuses, benefits in kind, rental profit and savings interest. See how bonuses are taxed.
How much pension do I need to pay to avoid it?
Enough to bring adjusted net income down to £100,000. On £112,000 that’s £12,000 gross. The take-home pay calculator shows your exact figure.
Does salary sacrifice reduce adjusted net income?
Yes. Sacrificed salary is never paid to you, so it isn’t income at all. Read our salary sacrifice guide.
This guide is general information, not financial or tax advice.