A higher salary should feel like a reward — but for many in the UK, crossing the £100,000 income mark brings an unexpected sting in the tail: the loss of your Personal Allowance, and with it, an effective tax rate of up to 60%.
Let’s break down why this happens, who it affects, and what you can do about it.
What is the £100k Tax Trap?
In the UK, every individual is entitled to a tax-free Personal Allowance — currently £12,570 (2025/26). However, this allowance is gradually withdrawn once your adjusted net income exceeds £100,000. For every £2 over that threshold, £1 of the allowance is lost.
That means by the time you reach £125,140, your entire Personal Allowance is gone.
The result? You effectively pay 40% income tax on your salary plus 20% on the lost tax-free allowance — creating a marginal tax rate of 60% on income between £100,000 and £125,140.
Why It Matters
This trap can leave professionals — from consultants and doctors to senior managers and business owners — feeling punished for working harder or receiving bonuses. It can create a situation where a modest pay rise or freelance project barely moves the needle after tax.
What’s more, adjusted net income doesn’t just include your salary — it also factors in things like rental income, savings interest, dividends, and even employer-provided benefits.
Strategies to Soften the Blow
The good news is that smart planning can help you navigate the £100k trap. Here are a few techniques:
1. Pension Contributions
Making personal pension contributions reduces your adjusted net income. For instance, if you earn £110,000 and contribute £10,000 into your pension, you can effectively restore your Personal Allowance and enjoy tax relief on your contribution — a double win.
2. Gift Aid Donations
Charitable donations made via Gift Aid also reduce your adjusted net income. If you’re philanthropically inclined, this could be a tax-efficient way to give more and pay less tax.
3. Salary Sacrifice
Some employers allow you to sacrifice part of your salary in return for pension contributions, childcare vouchers, or other benefits — reducing your taxable income while preserving value.
4. Timing Income Wisely
Where possible, consider spreading out bonuses or deferring income to avoid breaching the £100,000 mark in a single tax year.
The Bottom Line
The £100k tax trap is a frustrating quirk in the UK tax system, but with the right planning, it’s possible to mitigate its impact. If you’re approaching or already within this band, it’s worth reviewing your options with a financial planner to ensure you’re not giving more to HMRC than you need to.