What is the 60% tax trap?

If you’re earning over £100,000, here’s what you need to know before 5 April.

How does the 60% tax trap work?

Everyone in the UK is entitled to a Personal Allowance – the amount you can earn tax-free. For the 2025/26 tax year, that’s £12,570.

Where does the 60% come from?

For every extra £2 you earn in the £100,000–£125,140 band, you pay 40% tax on that income and lose £1 of tax-free allowance, which is then taxed at 40% too. That’s £1.20 in tax on every £2 of income: an effective rate of exactly 60%.

In other words, for every extra £100 you earn between £100,000 and £125,140, you keep just £40 after income tax. And that’s before National Insurance. It’s a rarely discussed quirk of the UK tax system, and it catches a lot of people off guard. 

Who does the 60% tax trap affect?

You’re in the trap if your adjusted net income – not just your salary – is between £100,000 and £125,140. This includes:

• Employees earning over £100,000
• Employees earning £80,000–£100,000 who receive a large bonus or pay rise
• High earners with side income from freelancing, rental property, or dividends
• Directors taking a combination of salary and dividends where the total exceeds £100,000

What is adjusted net income?

• Adjusted net income is your total income – from all sources – after deducting pension contributions and Gift Aid donations, but before your Personal Allowance is applied. 
• It’s the figure HMRC uses to calculate how much of your allowance to withdraw.

This is actually where your biggest opportunity lies. Reduce your adjusted net income below £100,000 and you escape the trap entirely.

Do you need to file a Self Assessment tax return?

Whether you need to file a Self Assessment return depends on your full circumstances, not just your salary. If you earn over £100,000 and have income from dividends, capital gains, rental property, or other sources, you will almost certainly need to file – and you’ll want to, because it’s how you claim back higher-rate pension tax relief and other reliefs you’re entitled to.

The deadline for filing your 2025/26 Self Assessment return online is 31 January 2027.

What can you do to reduce your tax rate?

There are three main strategies. We’ve ordered them by impact and accessibility.

1. Save more into your pension

Most people in their 20s and 30s aren’t thinking about retirement. But the ones who do are quietly building a significant head start. Pension contributions might not sound exciting, but they’re the single most effective way to escape the 60% tax trap.

Why should you save into your private pension?

Three reasons:

• You get your tax back on whatever money you save. That 60%? You can get it back
• For every £100 you contribute while you’re in the 60% trap, you effectively recover the lost personal allowance and the higher-rate relief – making pension contributions one of the most tax-efficient moves available to you at this income level. 
• Your employer is required to contribute at least 3% of your qualifying earnings under auto-enrolment, and many contribute more.
• Investment growth inside a pension is tax-free. When you come to take your money, you can usually withdraw up to 25% as a tax-free lump sum – the rest is taxed as income. The minimum age to access your pension is currently 55, rising to 57 in April 2028.

How does pension tax relief work?

Is your employer using “net pay” for your pension contribution? 

Good news: whatever you save already includes any tax you would have paid. No need to do anything. 

Bad news: it’s quite hard to change how much you save whenever you want to save more – you have to ask your employer whenever you want to save more or less.

Is your employer using “relief at source”? Then how much tax you can get back depends on how much you earn:

• 20% basic rate relief is added to your pension pot automatically by your provider. If you’re a higher-rate taxpayer, you can then claim an additional 20% back through your Self Assessment return – or 25% if you pay the additional rate.
• If you’re caught in the 60% trap (£100k–£125,140), you can claim the full 60% effective relief through your Self Assessment return. 
• If your threshold income exceeds £200,000 and your adjusted income exceeds £260,000, your annual allowance starts to taper down – potentially to as little as £10,000. If you’re in this position, it’s worth speaking to a tax accountant before making large pension contributions. 

2. Ask for a non-cash bonus instead of a cash one 

This works great if you’re starting out in investment banking or consulting, where usually it’s the bonus that sends you into the 60% tax trap.

By reducing your cash earnings by just a bit, you can push your income below £100,000 – while also getting your bonus. This works especially well if a bonus or pay rise is about to push you over £100k for the first time.

For example:

• Private medical insurance (including tests, treatments, etc.)
• Company car (especially if it’s electric)
• Childcare
•  Cycle to Work scheme – there’s no HMRC upper limit, but most employers set a cap of around £1,000 for standard bikes or £3,500 for e-bikes. Check what your employer offers.

Many of these can be arranged tax-efficiently through your employer, though the tax treatment varies by benefit. Pension contributions and the Cycle to Work scheme offer the most straightforward savings. For others like private medical insurance or a company car, it’s worth checking the benefit-in-kind rules with your employer or a tax accountant.

3. Invest in startups

This is another great way to save on tax. Although be aware that startups are risky investments and your capital is at risk. The This type of investment works similarly to the pension tax relief: you invest in a startup today, and you can get the tax back on that amount through a Self Assessment tax return.

There are three startup investment schemes in the UK:

• The Seed Enterprise Investment Scheme (SEIS) gives you 50% back
• The Enterprise Investment Scheme gives you 30% back
• The Venture Capital Trust (VCT) gives you 20% back (for investments made from 6 April 2026 onwards) 

Plus, if the startup makes it big, gains on EIS and SEIS shares are free from Capital Gains Tax – provided you’ve held the shares for at least 3 years and your income tax relief hasn’t been withdrawn. VCT shares are always exempt from CGT on disposal, though you need to hold them for at least 5 years to keep the income tax relief.

How to find startups to invest in if you’re not a professional angel investor:

• Equity crowdfunding platforms like Crowdcube or Republic Europe (formerly Seedrs) 
• VCT brokers like Hargreaves Lansdown or WealthClub

Just remember to file a Self Assessment and declare these investments: if you don’t, not only will you not get your tax back, but the gains from the eventual profit (IPO, acquisition, etc.) will not be tax-free either.

What happens if you do nothing?

• If you earn £110,000 and take no action, you’ll pay an effective 60% tax rate on £10,000 of income. That’s £6,000 in tax on that slice alone.
• A £10,000 pension contribution could recover that £6,000 through effective tax relief – and that’s before any investment growth.
• The deadline is 5 April (the end of the tax year). Pension contributions made after that date don’t count for the current year.

Don’t leave money on the table. File with Taxfix and we’ll find every relief you’re entitled to.

The Bottom Line

The 60% tax trap is a sneaky one, but now you know how it works, and more importantly, how to dodge it. Whether it’s through pension contributions or other tax-efficient moves, there are ways to keep more of what you earn. Because let’s be real, no one wants to pay more tax than they have to.

FAQ: 60% tax trap

How to avoid 60% tax trap?

The most effective way is to reduce your adjusted net income below £100,000 before 5 April. The main options are:

• Make pension contributions. Every pound paid into a pension reduces your adjusted net income pound for pound. A gross contribution equal to the amount you are over £100,000 restores your full Personal Allowance and eliminates the trap.
• Make Gift Aid donations. Donations to registered charities under Gift Aid reduce your adjusted net income in the same way.
• Take non-cash benefits instead of a cash bonus. If a bonus is about to push you over £100,000, ask your employer about alternatives such as additional pension contributions or a cycle-to-work scheme.

The deadline is 5 April. Contributions and donations made after that date do not count for the current tax year.

What is the 60% tax bracket?

There is no official “60% tax bracket” in the UK. The 60% figure is an effective marginal rate – not a formal band – that applies to income between £100,000 and £125,140. Once your adjusted net income exceeds £100,000, HMRC withdraws your Personal Allowance at £1 for every £2 earned above that threshold. The Personal Allowance for 2026/27 is £12,570, so it disappears entirely at £125,140.

Because you are already paying 40% higher-rate tax, and each extra £2 also costs you £1 of tax-free allowance (taxed at 20%), the combined effect is 60p of tax on every £1 earned in this band. Example: income rises from £100,000 to £110,000. That extra £10,000 costs £6,000 in income tax – an effective rate of 60%.

Do I need to file a Self Assessment if I earn over £100k?

Not automatically – but most people earning over £100,000 will still need to file. Since April 2024, earning over £100,000 through PAYE alone no longer triggers a mandatory Self Assessment requirement.
You will need to file if any of the following apply:

• You are self-employed with trading income above £1,000
• You have untaxed income from rental property, dividends, or savings interest
• You have capital gains above £3,000
• You need to pay the High Income Child Benefit Charge
• HMRC has written to you asking for a return

You will also want to file to claim higher-rate pension tax relief – the only way to get it back. The online filing deadline for 2025/26 is 31 January 2027.

Can I avoid the 60% tax trap if I’m self-employed?

Yes. The trap applies to anyone whose adjusted net income falls between £100,000 and £125,140 – including sole traders and company directors. As a self-employed person, you can contribute to a personal pension such as a SIPP. Each pound contributed reduces your adjusted net income pound for pound. You cannot use salary sacrifice (that is an employee arrangement), but personal pension contributions and Gift Aid donations work just as well.
One key difference: your exposure only becomes visible when you file your Self Assessment return – sometimes months after the tax year ends. By then, the allowance for that year is permanently lost. Planning before 5 April is essential.

How much pension contribution do I need to avoid the 60% tax trap?

The formula is simple: gross contribution needed = your adjusted net income minus £100,000. Example: adjusted net income of £115,000 means you need a £15,000 gross pension contribution to escape the trap entirely.
If you contribute via a relief-at-source pension (such as a SIPP), you only pay 80% yourself – your provider claims the 20% basic-rate relief automatically. You then claim any additional higher-rate relief through your Self Assessment return. So for a £15,000 gross contribution: you pay £12,000, your provider adds £3,000. Key limits for 2026/27: the pension annual allowance is £60,000 (or 100% of your UK earnings if lower). You can also carry forward unused allowances from the previous three tax years.

Does the 60% tax trap include National Insurance?

No – the 60% figure is income tax only. With National Insurance added, the effective rate is higher. For employees, National Insurance above the Upper Earnings Limit (£50,270 for 2026/27) is 2%. So the combined marginal rate in the trap zone is 62% – meaning you keep just £38 from every extra £100 earned between £100,000 and £125,140.
For self-employed people, Class 4 National Insurance also applies at 2% above £50,270, giving a similar combined rate. Note: salary sacrifice pension contributions reduce your gross salary, so you also save on National Insurance. However, from April 2029, the National Insurance saving from salary sacrifice pension contributions will be capped at £2,000 per year, following the Autumn Budget 2025.

This article provides general information only and is not personalised tax advice.