The £100,000 tax trap: how a pay rise can leave you worse off
Across the band from £100,000 to £125,140, HMRC takes 60 pence out of every extra pound you earn. This is not an accident, it is baked into the rules, and it quietly catches thousands of professionals who have no idea it is happening.
Start with what happens at £100,000
The UK personal allowance, the slice of income you earn tax-free, is £12,570 in 2026/27. Everybody gets it, apart from people earning over £100,000. For them, the allowance begins to melt away.
Every £2 you earn above £100,000 costs you £1 of personal allowance. By £125,140 the whole £12,570 has been clawed back, gone completely, and you are paying income tax from the very first pound.
That clawback is the trap, and here is why it produces a 60% marginal rate:
- Above £100,000 you are already on 40% income tax, the higher rate
- The allowance withdrawal also strips £0.50 of allowance for every extra £1 you earn
- That lost £0.50 had been shielding income from 40% tax, so it adds 20p of tax
- Add it up: 40p higher rate plus 20p from the withdrawal equals 60p per £1 earned
How the numbers play out
Take three senior UK software engineers:
| Gross Salary | Annual Take-Home | Monthly | Effective Rate |
|---|---|---|---|
| £95,000 | £63,000 | £5,250 | 33.7% |
| £112,570 (allowance fully gone) | £69,462 | £5,789 | ~38.3% |
| £125,140 | £76,278 | £6,357 | 39.1% |
Look at the jump from £95,000 to £112,570. Gross rises by £17,570, yet take-home rises by only £6,462. That is 36.8 pence in the pound on the extra earnings, and part of that band is being taxed at 60p.
Here is a concrete case. Someone moves from £100,000 to £103,000, a £3,000 raise. After the combined 60% effect they keep an extra £1,200 a year. Their manager pictures handing them £250 a month more; what actually lands is £100 a month.
Who falls into it?
Far more people than you would guess. In London in particular, you will regularly find these roles in the £100k to £125k zone:
- Mid-career city solicitors, 3-5 PQE at Silver Circle or Magic Circle firms
- Senior software engineers at product companies and scale-ups
- NHS consultants from entry to mid scale
- Finance staff: investment-bank VPs, Big Four senior managers
- Senior civil servants, Grade 6-7 in some departments
- Experienced GPs towards the top of the BMA salaried scale
None of these are exotic jobs, and plenty of employers pay in this band without giving a thought to what it does to the employee's real take-home.
The legal way out: pension salary sacrifice
This is where it gets interesting, and where good advice can pay for itself many times over. The usual move is to pay into a pension so that your adjusted net income drops back below £100,000.
Say you earn £115,000 and want your allowance back. You need to bring taxable income down to £100,000, which means a £15,000 pension contribution: that £15,000 both removes the £15,000 of income sitting in the taper zone and restores the full £12,570 allowance.
The tax saved on that £15,000 is roughly £9,000, thanks to the 60% effective rate over the band. Your cash take-home falls by about £6,000 a year (£500 a month), but £15,000 goes into your pension. In other words, £15,000 of pension for a net cash cost of £6,000, an effective 250% return before any investment growth at all.
Plenty of financial advisers rate this as one of the most efficient tax plays open to UK earners, precisely because the 60% band makes the saving so large.
The childcare twist on top
There is a further layer that catches parents out. Tax-Free Childcare, worth up to £2,000 a year per child in government top-up, only applies when both parents have an adjusted net income under £100,000. Cross to £100,001 and the whole family loses it outright. No taper, just a cliff.
For a family with two children in childcare, going over the £100,000 line can cost £4,000 a year. Stack that on the allowance withdrawal, and for those parents the effective marginal rate on income from £99,000 to £101,000 can top 60%. For that particular group, the £100k threshold is genuinely toxic.
Self-assessment: don't get caught out
If you earn over £100,000 on PAYE, your tax code has probably been adjusted already, but it is worth a check. HMRC should automatically strip the personal allowance once you pass £125,140, though a mid-year pay rise can leave the code lagging behind.
Anyone over £100,000 should be filing a self-assessment return each year. If you are unsure whether that includes you, it almost certainly does.
See exactly what you keep: our UK salary calculator maps the allowance withdrawal at every salary point, the 60% band included. Try any figure from £95,000 to £130,000 and watch the curve.
One last thing worth knowing
The £125,140 threshold is frozen, and so is the £12,570 personal allowance. With wages rising, more people are pulled into this band each year without any real-terms increase in pay. That effect, often called "fiscal drag", is a big reason so many more taxpayers are now self-assessing and running into the UK's effective-rate structure.
The awkward irony is that the 60% band was never legislated as policy. It fell out of the maths of the personal allowance taper brought in back in 2010. More than a decade on it is still here, and snaring more earners than ever.