If your income is between £100,000 and £125,140, you are paying an effective marginal income tax rate of 60%. Not 45%. Not 40%. Sixty per cent. It is one of the least-discussed features of the UK tax system, it affects a large and growing number of professionals, and most of the people caught in it are paying more tax than they need to.
This guide explains how the trap works, why it exists, and the strategies — including EIS — that experienced tax planners use to reduce income below £100,000 and escape it entirely.
How the 60% trap works
The UK personal allowance — the amount you can earn before paying income tax — is £12,570 for 2025/26. But it is not available to everyone. For every £2 your income exceeds £100,000, you lose £1 of personal allowance. By the time your income reaches £125,140, the personal allowance has been withdrawn entirely.
The mechanics create a brutal marginal rate in that £25,140 band. You pay 40% income tax on the income itself. And because each £2 of income also costs you £1 of personal allowance — which would otherwise have been taxed at 0% — you lose a further 20p in tax for every £1 earned. 40% + 20% = 60% effective marginal rate.
Example: You earn £110,000. Your personal allowance has been reduced by £5,000 (£10,000 over the threshold, halved). Those £5,000 of allowance, now taxed at 40%, cost you an extra £2,000 in tax — on top of the 40% you are already paying on the £10,000 above £100,000. The combined effect: £6,000 tax on £10,000 of income.
Who is caught
The trap catches a wide range of earners: senior managers and professionals in London and the South East where salaries in the £100,000–£130,000 range are common, doctors in senior NHS grades, partners in professional services firms, and anyone who has had a bonus or a share vesting event that pushed their income above £100,000 in a given year. With the threshold frozen since 2010 and wages rising, more people are caught every year.
The strategies used to escape it
Pension contributions
The most widely used solution. Pension contributions reduce your adjusted net income — the figure HMRC uses to calculate the personal allowance withdrawal. A gross pension contribution of £10,000 reduces adjusted net income by £10,000, potentially restoring £5,000 of personal allowance and saving £2,000 in additional tax. The effective tax relief on pension contributions within the trap is 60% — making it one of the most tax-efficient uses of money available anywhere in the UK tax system.
The annual pension contribution limit is £60,000 (including employer contributions) for 2025/26. If you can contribute enough to bring your adjusted net income below £100,000, you escape the trap entirely.
Gift Aid donations
Charitable donations made through Gift Aid also reduce adjusted net income. The mechanics are identical to pension contributions for this purpose. A £10,000 Gift Aid donation reduces adjusted net income by £10,000. For donors already planning to give to charity, timing donations to fall within the high-income year makes them substantially more valuable.
EIS investment
EIS does not directly reduce adjusted net income — the income tax relief is a reduction in your tax bill, not a deduction from income. So EIS alone does not escape the personal allowance trap. However, EIS is powerful in a different way: the 30% income tax relief applies to your total income tax bill, including the inflated bill caused by the trap. Invest £50,000 in EIS and receive £15,000 off your tax bill — reducing the effective sting of the 60% rate even if it does not eliminate it.
For high earners caught in the trap who have already maxed pension contributions, EIS provides the next layer of tax relief. Used together — pension to bring income below £100,000, then EIS for further income tax reduction — the combination is highly effective.
The salary sacrifice option
For employed earners, salary sacrifice pension contributions reduce gross salary — which directly reduces adjusted net income. This is more efficient than personal pension contributions in some circumstances because it also saves National Insurance contributions. An employee sacrificing £15,000 of salary to bring income from £115,000 to £100,000 saves: income tax at 40% on £15,000 (£6,000), the personal allowance restoration (£7,500 — restoring £3,750 of allowance, saving £1,500 at 40%), and National Insurance at 2% on the sacrificed salary (£300). Combined saving: approximately £7,800 on £15,000 of salary.
The child benefit trap within the trap
If you or your partner receives Child Benefit and your income exceeds £60,000, you begin repaying it through the High Income Child Benefit Charge. At £80,000, Child Benefit is fully clawed back. The interaction with the personal allowance taper means that earners between £100,000 and £125,140 who also have children claiming Child Benefit face an even higher effective marginal rate in some scenarios. For these earners, pension contributions and EIS investment are not just tax planning — they are essential to avoid paying double penalties on the same income.
The practical approach
If your income is likely to breach £100,000 this year, the most important step is a conversation with an accountant or financial adviser before the tax year ends. The solutions available — pension contributions, salary sacrifice, EIS investment, Gift Aid — all need to be in place before April 5. After that date, the only option is carry-back, which has its own constraints.
The 60% trap is entirely legal and entirely avoidable with the right planning. It is also largely invisible to people who do not know it exists. If your income has recently crossed £100,000 for the first time — through a promotion, a bonus, or a share vesting — you may be about to receive a tax bill that surprises you. Act before the year ends.
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