The £100k tax trap is the band of income between £100,000 and £125,140 where your personal allowance is withdrawn. For every £2 of adjusted net income above £100,000 you lose £1 of the £12,570 allowance. Each extra pound of income in that range is therefore taxed at an effective 60%, or 62% once employee National Insurance is added. In Scotland it is 67.5% before National Insurance. Crossing £100,000 also ends access to Tax-Free Childcare (worth up to £2,000 a year per child) and, in England, the 30 hours of free childcare for working parents. The £100,000 limit has not moved, and the allowance is frozen until 5 April 2031, so more earners fall into the trap every year.
How the 60% tax trap works
Section 35 of the Income Tax Act 2007 reduces the personal allowance by half of the amount by which your adjusted net income exceeds £100,000. At £125,140 the allowance is nil.
For someone in England, Wales or Northern Ireland, an extra £100 of salary above £100,000:
- Is taxed at 40%. That is £40;
- Removes £50 of personal allowance. That £50 is now also taxed at 40%, another £20;
- Costs £60 in total. An effective rate of 60%, plus 2% employee National Insurance (or 2% Class 4 for the self-employed).
Worked illustration (not HMRC figures): income tax on £100,000 is £27,432. On £110,000 it is £33,432, so the extra £10,000 costs £6,000. On £125,140 it is £42,516, which is £15,084 more than at £100,000: exactly 60% of the £25,140 band. Above £125,140 the marginal rate falls back to 45%. Someone on £125,000 therefore pays a higher marginal rate than someone on £200,000.
In Scotland the band sits inside the 45% advanced rate (£75,001 to £125,140). Illustration: 45% plus the lost allowance taxed at 45% gives 67.5%, before National Insurance. See our guide to Scottish tax bands.
The childcare cliff edge
The allowance taper is gradual. The childcare rules are not. You cannot get either of these if you or your partner expect adjusted net income over £100,000 for the tax year:
- Tax-Free Childcare. The government adds £2 for every £8 you pay into a childcare account, up to £500 every 3 months (£2,000 a year) per child, or £1,000 every 3 months (£4,000 a year) for a disabled child. Children are eligible until the September after they turn 11, or 16 if disabled;
- Free Childcare for Working Parents in England. Up to 30 hours a week for children aged 9 months to 4 years.
One pound over the limit removes the whole entitlement. For a family with two young children, the value of free hours and Tax-Free Childcare can be larger than the extra income tax, so the true marginal cost of crossing £100,000 can exceed 100%. The test applies to each parent separately: a household with two earners on £90,000 keeps both schemes, while a single earner on £101,000 loses them.
The high income child benefit charge is separate. It starts at £60,000 and recovers all of the child benefit by £80,000, so by £100,000 it has already applied in full.
Adjusted net income is the number that matters
The trap is measured on adjusted net income, not salary. Under section 58 of the Income Tax Act 2007 you start with total taxable income, including salary, bonus, benefits in kind, rental and self-employed profits, interest and dividends, less certain reliefs. Then you:
- Deduct Gift Aid. Take off the grossed-up amount of Gift Aid donations (£1.25 for every £1 given);
- Deduct personal pension contributions. Take off the gross amount of contributions that received relief at source (£1.25 for every £1 paid);
- Add back union relief. Add back any relief for trade union or police organisation payments.
Contributions made through salary sacrifice, or deducted from gross pay under a net pay arrangement, already reduce taxable pay, so they reduce adjusted net income too. See relief at source vs net pay.
How to get out of the £100k trap
Pension contributions. This is the most effective route. Illustration: someone on £110,000 pays £8,000 into a personal pension, and the provider adds £2,000, making £10,000 gross. Adjusted net income falls to £100,000 and the full personal allowance is restored. Total relief is £6,000: the £2,000 added at source plus £4,000 claimed through Self Assessment. The £10,000 in the pension costs £4,000 net. The higher rate relief is not automatic. It must be claimed on a tax return or from HMRC. Contributions count towards the £60,000 annual allowance. Unused allowance from the previous three years can usually be carried forward, and the allowance tapers only where threshold income exceeds £200,000 and adjusted income exceeds £260,000. See our guide to adjusted income and the taper.
Salary or bonus sacrifice. Exchanging salary or bonus for an employer pension contribution saves income tax and National Insurance. The arrangement has to reduce your contractual entitlement to the pay, so it must be documented before you become entitled to the salary or bonus. From April 2029, only the first £2,000 a year of sacrificed pension contributions will be exempt from National Insurance. The income tax benefit, and therefore the escape from the trap, is unaffected.
Gift Aid. Charitable donations reduce adjusted net income by their grossed-up amount, and can be carried back to the previous tax year in some cases.
Timing and income mix. A bonus, dividend or property sale profit in a different tax year can keep each year under £100,000. Couples can sometimes rebalance savings or investment income between them. Our guide to how bonuses are taxed covers the payroll side.
Check before the tax year ends
Adjusted net income is fixed once 5 April passes. Gift Aid carry-back is the main exception. So the review needs to happen while there is still time to act. Childcare eligibility also has to be reconfirmed every three months, and it is based on the income you expect for the year. Track your income during the year, not just at the end.
Acumon's tax planning team models adjusted net income, pension headroom and childcare eligibility before the year end. Our income tax return service makes sure higher rate pension and Gift Aid relief is claimed on your return. If your income for 2026/27 is heading towards £100,000, talk to us before 5 April 2027.