The 60% tax trap: why earning over £100,000 can feel like a pay cut

You finally break £100,000. It should feel like the point where money stops being a worry. For a lot of people it’s the opposite: every extra pound seems to disappear.

That isn’t in your head. Between £100,000 and £125,140, the UK tax system takes more of each extra pound than it does from someone earning a million.

How the 60% tax trap works

Everyone gets a tax-free Personal Allowance of £12,570. Once your income goes over £100,000, you lose £1 of that allowance for every £2 you earn above it. By £125,140 it’s gone completely.

So each extra £2 you earn in that band costs you twice:

• 80p in higher-rate income tax at 40% on the £2 itself
• 40p more tax, because £1 of your allowance is now taxed at 40% too

That’s £1.20 of tax on every £2, an effective rate of 60%. Add 2% National Insurance and you keep about 38p of each extra pound.

What it looks like in pounds

Salary	Extra income over £100,000	Extra tax and NI on it	What you keep
£105,000	£5,000	£3,100	£1,900
£110,000	£10,000	£6,200	£3,800
£125,140	£25,140	£15,587	£9,553

A £10,000 pay rise from £100,000 to £110,000 is worth about £317 a month in your account.

It isn’t only tax

Go over £100,000 of what HMRC calls adjusted net income and you can also lose:

• Tax-Free Childcare, worth up to £2,000 a year per child
• Funded childcare hours in England for working parents

If you have young children, crossing £100,000 by even £1 can cost you thousands. That’s the part that catches most people out.

What people in this band usually do

The 60% only applies to adjusted net income, not your headline salary. A few things reduce it:

• Pension contributions. Paying into a pension, through salary sacrifice or personal contributions, lowers adjusted net income. Many people in this band find that money they’d have lost at 60% goes into their pension instead.
• Gift Aid donations to charity lower it too.
• Timing. If you control your income, for example as a business owner, when you take it matters.

Every one of these has rules and limits, and the right answer depends on your own situation. This is where a regulated adviser earns their fee.

The bigger point

Tax is one leak. The bigger one, in my experience, is that a higher salary arrives without a plan, so it disappears into a bigger life. You can’t change the tax rate. You can decide what every pound you do keep is for, before payday.

Figures use 2026/27 rates for England, Wales and Northern Ireland and are correct on 16 October 2026. Scotland has different income tax bands. Thresholds can change at a Budget, so check after 28 October 2026.