The £100,000 tax trap: why earnings between £100,000 and £125,140 lose 60%

The rule

GOV.UK: "Your personal allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above."

The standard allowance is £12,570, and £12,570 × 2 = £25,140, which is why it runs out at exactly £125,140. Above that point you are taxed at the 45% additional rate (in England, Wales and Northern Ireland) on income over £125,140.

Why the effective rate is 60%

Take one extra £1 of salary in the taper zone:

• The £1 is taxed at the higher rate: 40p.
• It also removes 50p of Personal Allowance. That 50p, which was tax-free, is now taxed at 40%: 20p.
• Total Income Tax on the extra £1: 60p. Employee National Insurance above £50,270 is 2%, so 62p goes in deductions and you keep 38p.

The numbers, 2026/27 (England, Wales, NI)

Going from £100,000 to £110,000 adds £10,000 of salary, £6,000 of Income Tax and £200 of NI: take-home rises by £3,800. Across the whole zone, from £100,000 to £125,140, an extra £25,140 of pay brings £15,084 more Income Tax (60%) and £502.80 more NI (2%), so take-home rises by £9,553.20. Above £125,140 the marginal rate drops back to 45% plus 2% NI: the next £4,860 to £130,000 adds £2,575.80 to take-home.

In Scotland the same taper applies, and the Scottish advanced rate on that slice is 45%, so the effective Income Tax rate there is 67.5% (45% + half of 45%). Our engine gives £6,750 more Income Tax between £100,000 and £110,000 for a Scottish taxpayer, against £6,000 elsewhere.

It is adjusted net income that counts, not salary

The taper is based on adjusted net income. GOV.UK describes it as total taxable income before any Personal Allowances and less certain tax reliefs, and gives four steps:

1. Add up your taxable income (employment pay and benefits, self-employed profits, most pensions, savings interest, dividends, some rental income and more). Take off reliefs such as pension payments made gross without tax relief and trading losses. This is your net income.
2. Take off the grossed-up amount of Gift Aid donations: for every £1 donated, £1.25.
3. Take off the grossed-up amount of pension contributions where the provider has already given basic rate relief: for every £1 paid, £1.25.
4. Add back any relief taken for trade union or police organisation payments.

So the figure that matters can include savings interest, dividends or rental profit on top of a salary below £100,000. GOV.UK's example: Bill has £115,000 of taxable income (self-employment, property and interest) and makes £10,000 of pension contributions without tax relief, so his adjusted net income is £105,000, and that is the figure used for his Personal Allowance.

Adjusted net income is also the measure used for the High Income Child Benefit Charge, which GOV.UK works through in a separate example on the same page.

How pension contributions change the numbers

Because pension contributions reduce adjusted net income, they can bring it back towards £100,000. Two common routes, worked through for a £110,000 salary with £10,000 going into a pension:

Salary sacrifice

Salary sacrifice reduces your contractual cash pay (see our salary sacrifice guide). If £10,000 is sacrificed into the pension, cash pay becomes £100,000, the full Personal Allowance applies and take-home is £68,557.40 instead of £72,357.40. Take-home falls by £3,800 while £10,000 goes into the pension.

Relief at source

With a personal or relief-at-source pension, you pay £8,000 and the provider adds £2,000 of basic rate relief, making £10,000 gross. That gross £10,000 is taken off adjusted net income, bringing it to £100,000. Payroll still taxes you on £110,000, so the rest comes back through a claim:

• extra relief of 20% on the £10,000, because it is no more than the income you paid 40% on: £2,000
• £5,000 of restored Personal Allowance, worth 40%: £2,000

Net cost: £8,000 − £2,000 − £2,000 = £4,000 for £10,000 in the pension. The £200 difference from salary sacrifice is the 2% National Insurance, which salary sacrifice also removes. GOV.UK says higher rate taxpayers claim the extra relief on their Self Assessment return, and explains how to claim if you do not file one.

Pension contributions carry their own limits: tax relief is available on contributions worth up to 100% of your annual earnings, and the annual allowance is £60,000 (lower for some people with very high incomes or who have flexibly accessed a pension).

Gift Aid works the same way

Gift Aid donations reduce adjusted net income by the grossed-up amount (£1.25 for every £1 donated). Someone with £104,000 of adjusted net income who donates £3,200 under Gift Aid reduces it by £4,000, to £100,000.

In short

• The taper zone runs from £100,000 to £125,140 of adjusted net income in 2026/27.
• Inside it, Income Tax takes 60p of each extra pound (67.5p in Scotland), plus 2p National Insurance on earnings.
• Pension contributions and Gift Aid reduce adjusted net income; salary sacrifice reduces the pay itself.

Frequently asked questions