# The £100,000 tax trap — and how to escape it > Benefits & tax · Last updated 6 April 2026 Canonical HTML: https://moneyguide.org.uk/benefits-tax/100k-tax-trap/ Markdown mirror: https://moneyguide.org.uk/benefits-tax/100k-tax-trap.md ## Quick answer Earn between £100,000 and £125,140 and you lose £1 of Personal Allowance for every £2 earned — an effective marginal tax rate of about 60–62% including National Insurance. Earn between £100,000 and £125,140 and your effective marginal tax rate is around 60% — the highest band most workers will ever face. Pension contributions and salary sacrifice can pull you back below the trigger. ## Key facts - Personal Allowance: reduced by £1 for every £2 of income above £100,000 — gone entirely at £125,140. - Effective marginal rate in the £100k–£125,140 band: roughly 60% (40% tax + 20% lost allowance) plus 2% NI = ~62%. - Free childcare (15 / 30 hours, tax-free childcare) cuts off at £100,000 adjusted net income per parent. - Pension contributions and Gift Aid both reduce 'adjusted net income' for the taper. ## Why the marginal rate spikes to 60% Above £100,000, every extra £2 of income costs you £1 of Personal Allowance. That £1 is now taxed at 40% — so you effectively lose 40p on top of the 40p of tax you already pay on the £2 earned. Add 2% National Insurance and you keep roughly £0.78 of every £2 you earn in this band — an effective marginal rate of about 61–62%. Above £125,140, the Personal Allowance is fully tapered away and you drop back to the headline 42% (40% tax + 2% NI) marginal rate until the £125,140 additional-rate threshold. ## The hidden cliff edges Tax-free childcare and the 15/30 hours of free childcare are withdrawn entirely once either parent's adjusted net income hits £100,000. For some families this is worth more than £10,000 a year per child — making the effective marginal rate well over 100% on the £1 that crosses the line. The High Income Child Benefit Charge tapers Child Benefit between £60,000 and £80,000. It is not the same trigger, but families with multiple children can face both clawbacks at different income points. ## How to bring adjusted net income below £100,000 Adjusted net income is your taxable income minus grossed-up personal pension contributions and Gift Aid donations. A £4,000 pension contribution on a £104,000 salary brings you to £100,000 adjusted net income — preserving the Personal Allowance and childcare entitlement. The effective tax relief on that contribution can be 60%+ once the allowance is regained. Salary sacrifice into a workplace pension also reduces your gross salary directly, so it both avoids the taper and saves National Insurance — usually the most efficient option of all. ## Frequently asked questions ### Is the trap really 60% — or higher? For income alone, around 60–62% including NI. For families using free childcare, the effective rate on the £1 that crosses £100,000 can exceed 100% because of the cliff-edge benefit loss. ### Do bonuses count? Yes — bonuses are part of taxable income. Many higher earners ask for the bonus to be paid into their pension via salary sacrifice for exactly this reason. ### What about Scotland? Scotland has its own income tax bands but the UK-wide Personal Allowance taper still applies above £100,000. Scottish higher-rate taxpayers face a similar 60%+ marginal-rate zone with slightly different headline rates. ## Primary source https://www.gov.uk/guidance/adjusted-net-income ## Related - [Take-home pay calculator](https://moneyguide.org.uk/tools/take-home-pay-calculator/) - [Pension contribution calculator](https://moneyguide.org.uk/tools/pension-contribution-calculator/) --- Independent UK money guidance from [Money Guide](https://moneyguide.org.uk). Information only — not regulated financial advice.