I want to tell you about a conversation I had recently with a client. Let’s call him David.

David is a senior manager at a professional services firm. He’s in his mid-forties, works incredibly hard, and a few months ago he called me genuinely excited. He’d just had his annual review and his employer had offered him a pay rise. A meaningful one. The kind that, on paper at least, feels like proper recognition for years of graft.

Except when we actually sat down and looked at the numbers together, the smile faded fairly quickly.

The pay rise was pushing his salary from £98,000 to £108,000. And here’s where it gets uncomfortable. Of that extra £10,000 he was set to earn, David was going to keep just £4,000. Not because he’d done anything wrong. Not because of some obscure tax avoidance clampdown. But because of a quirk in our tax system that affects a surprisingly large number of people, and that almost nobody tells you about until it’s too late.

This is what’s known as the 60% tax trap. And if your income is anywhere near the £100,000 mark, I’d encourage you to keep reading.

How Does the Tax System Work At This Level?

Before I explain the trap itself, let me give you a quick reminder of how income tax works at this point in the earnings spectrum.

In the UK, we all benefit from what’s called the personal allowance. This is the amount you can earn each year completely free of income tax. For 2024/25, that figure sits at £12,570. Every pound you earn below that threshold? The government takes nothing.

Once you’re earning between £12,570 and £50,270, you’re paying basic rate tax at 20%. Between £50,270 and £125,140, you’re in higher rate territory, 40% to be precise. And above £125,140, additional rate tax kicks in at 45%.

On the face of it, that seems like a reasonably logical progression. You earn more, you pay more. Nothing too controversial there.

But here’s where it gets interesting, though not in a good way.

The Disappearing Personal Allowance

HMRC has a rule that most people earning under £100,000 never need to think about. But the moment your income crosses that threshold, it starts to matter enormously.

For every £2 you earn above £100,000, you lose £1 of your personal allowance.

Let that sink in for a moment.

So if you earn £102,000, your personal allowance drops from £12,570 to £11,570. At £110,000, it falls to £7,570. At £120,000, it’s down to £2,570. And by the time you hit £125,140, your personal allowance has been completely wiped out. Gone. As if it never existed.

Now, in isolation, losing your personal allowance is annoying. But when you combine it with the 40% higher rate tax you’re already paying in this band, the effect is something quite extraordinary.

The Maths That Makes Your Eyes Water

Here’s where the 60% figure comes from, and I think it helps to walk through it carefully so the penny really drops.

Imagine you earn £100,000 and you receive a bonus of £2,000. Straightforward enough, you might think. You’ll pay 40% higher rate tax on that, so you keep £1,200.

Except that’s not what actually happens.

Because that £2,000 bonus takes your income to £102,000, which means you’ve earned £2,000 over the £100,000 threshold. Under the tapering rules, that means you lose £1,000 of your personal allowance (£1 for every £2 earned over the threshold, remember).

That £1,000 of personal allowance you’ve just lost? It was previously sheltering income that wasn’t being taxed at all. Now that income is exposed to 40% tax. So you’re paying an extra £400 in tax simply because your allowance shrank.

Add that £400 to the £800 you’re already paying in higher rate tax on the bonus itself, and the total tax bill on your £2,000 bonus comes to £1,200. That’s a 60% effective tax rate.

Sixty. Percent.

And that rate applies all the way from £100,000 to £125,140. Every single pound earned in that range costs you sixty pence in tax. It’s a band where a pay rise can genuinely leave you worse off in net terms than if you’d simply stayed where you were.

Why Does This Happen?

Honestly? It’s the kind of thing that happens when tax policy is designed in layers over many years without anyone sitting back to look at the whole picture.

The personal allowance taper was introduced back in 2010. The idea, whether you agree with it politically or not, was that higher earners should progressively lose a benefit that was, in the government’s view, most valuable to those who needed it most. The intention may have been broadly defensible. The execution, however, created this rather bizarre cliff edge where a significant chunk of people face a higher effective marginal rate than those earning considerably more than them.

An additional rate taxpayer earning £200,000 faces a marginal rate of 45%. The person earning £105,000, who by most definitions of the word is also doing very well, but is earning £95,000 less, is facing 60%. That strikes most reasonable people as a bit… odd.

The problem is largely one of invisibility. The 60% rate doesn’t appear on any HMRC correspondence. Your payslip won’t flag it. And unless you happen to have a financial planner or accountant who proactively walks you through the implications, you might go years without realising it.

Who Gets Caught by This?

More people than you might think.

Over the past decade or so, wage growth across professional sectors has gradually pushed more and more people into this zone. When the taper was introduced in 2010, a salary of £100,000 felt like an exceptional outlier. Today, in sectors like law, finance, technology, medicine, and senior management more broadly, it’s not unusual at all.

Beyond salary, it’s also worth thinking about other forms of income. Bonuses. Dividends if you’re a director-shareholder. Income from property. Significant interest from savings. All of these count toward your adjusted net income, which is the figure HMRC uses to calculate how much of your personal allowance you keep.

This also interacts with a few other things worth being aware of. If you have children and receive Child Benefit, the High Income Child Benefit Charge starts biting at £60,000 and is fully clawed back by £80,000. And eligibility for Tax-Free Childcare disappears entirely once your income exceeds £100,000. So for families in particular, the real-world impact of earning in this zone can be even more significant than the headline tax numbers suggest.

The Good News: There Are Things You Can Do

I don’t want to leave you feeling like this is simply a tax you’re powerless to avoid. Because you’re not. There are legitimate, HMRC-approved planning tools that can make a real difference here, and frankly, for clients in this income bracket, planning around the £100,000 threshold is one of the most impactful conversations we have.

Pension contributions are often the most powerful tool available.

This is where it gets genuinely exciting. Pension contributions reduce your adjusted net income, which is the figure that determines how much personal allowance you keep. So if you’re earning £115,000 and you make a personal pension contribution of £15,000, your adjusted net income drops back to £100,000. Your personal allowance is restored in full. And you’ve effectively received 60% tax relief on those contributions.

Let me say that again, because I think it’s important. At this income level, every pound you contribute to your pension above the threshold attracts 60% tax relief. That means a £10,000 pension contribution costs you just £4,000 in real terms. You are essentially getting a 150% return on day one before a single investment decision has been made.

If you’re not using your pension to manage income in this zone, you’re almost certainly leaving money on the table.

Gift Aid donations work in a similar way.

Charitable donations made through Gift Aid also reduce your adjusted net income. So if you’re a regular donor to causes you care about, structuring those donations correctly can help bring your income back below £100,000 and restore your personal allowance. It’s a genuine case where doing something good for others also happens to be good for your finances.

Salary sacrifice arrangements, where you give up a portion of your salary in exchange for employer pension contributions, can also be effective. Because the contribution comes out of your salary before it’s taxed, it reduces your gross income rather than your net income, which can be particularly efficient depending on your employment structure.

A Quick Word of Caution

While the planning opportunities here are real and meaningful, it’s also worth being careful that any steps you take are right for your broader financial picture. Pension contributions, for instance, are locked away until you’re at least 55 (rising to 57 from 2028). For some people, having more accessible savings or investments makes more sense depending on their circumstances, their timeline, and their goals.

There are also rules around how much you can contribute to a pension in any given year. The annual allowance currently sits at £60,000 (or 100% of your earnings if that’s lower), though carry forward provisions mean you may be able to use allowances from the previous three tax years if you haven’t used them in full.

This is exactly why I’d always encourage anyone who’s approaching or exceeding the £100,000 threshold to get proper, personalised financial advice rather than making decisions based on general guidance alone. The principles are broadly applicable. The specifics very much depend on your individual situation.

Coming Back to David

David, as it turned out, had quite a bit of unused pension allowance from previous years. We were able to use carry forward provisions to make a meaningful additional contribution, bring his adjusted net income back below £100,000, restore his personal allowance, and give him an effective rate of tax relief on those contributions that he found genuinely hard to believe when we first showed him the numbers.

His reaction when we walked through it was something I enjoy every time. A kind of slow, dawning realisation that the financial system, which can often feel like it’s working against you, occasionally contains moments where, with the right planning, it actually works very much in your favour.

The 60% tax trap is real. It affects more people than most realise. And in many cases, it’s entirely possible to plan around it in a way that’s both legal and genuinely impactful.

If your income is nudging toward or above £100,000, it’s worth having the conversation. Not because the numbers are necessarily going to look like David’s. But because until you’ve actually sat down and looked at your specific situation in full, you won’t know what you might be missing.

And in my experience, that’s usually a conversation worth having.

The information in this article is for general guidance only and does not constitute personal financial advice. Tax rules can change and individual circumstances vary. Please speak to a qualified Chartered financial planner before making any financial decisions.