Written by Amanda Colbourne & Roger Duckworth
Ward Goodman
June 10, 2025
Earning over £100,000 might sound like a financial milestone – and in many ways, it is. But once your income tips into six figures, something unexpected happens: you could find yourself in one of the UK’s most punishing tax bands, where the effective rate of tax hits an eye-watering 60%. It’s a frustrating reality that catches out many high earners, especially those who aren’t actively planning for it.
Let’s break down what’s going on, why it matters, and what you can do about it.
What is the 60% Tax Trap?
The 60% tax trap kicks in once your income passes £100,000. From that point, for every extra £2 you earn, you lose £1 of your personal allowance – the tax-free chunk of income everyone gets (currently £12,570).
This means that between £100,000 and £125,140, you’re not just paying the 40% higher-rate tax – you’re also gradually losing that allowance. Add it all up, and the tax you’re effectively paying on that slice of income works out at a whopping 60%.
It’s a surprising penalty that only affects a small proportion of earners – around 2% of UK taxpayers – but if you’re in that bracket, the financial impact can be significant. And because it’s not part of the official tax bands, many people don’t spot it until they’ve already fallen into it – often after a bonus, freelance work, or a one-off windfall bumps them over the thresh
Why It Matters
This is one of those quirks in the system that really hurts if you’re not prepared. Imagine doing a bit of extra work, expecting a £5,000 net gain, and then realising the taxman has taken more than half. It stings.
It also affects more than just your income tax bill. If you are claiming Tax-Free Childcare and your income exceeds £100,000, you will cease to be eligible.
The good news? There are ways to bring your income back below the £100,000 threshold – or at least reduce how much of it falls into that high-tax window. These strategies can also help if you are affected by one of the other tax thresholds: if your income exceeds £60,000 it could affect your entitlement to Child Benefit, an income of over £125,140 would push you into the additional-rate band, and an income of over £200,000 could reduce your pension annual allowance.
Strategies to Reduce Your Effective Tax Rate
If your income puts you in or near the danger zone, there are a few smart, completely legitimate ways to ease the pressure.
1. Make Pension Contributions
This is probably the most effective option. Pension contributions reduce your adjusted net income – which is what HMRC uses to decide if you lose your personal allowance.
Put simply, by paying more into your pension, you could bring your taxable income back under £100,000 and hang onto that allowance. The result? You pay less tax now and grow your pension for the future. It’s a win-win.
If you’re caught in the 60% trap, every £1 you contribute to your pension could save you 60p in tax. That’s a powerful incentive. And if you want more control over your pension investments, a SIPP (Self-Invested Personal Pension) might be worth exploring.
Example: Imagine you earn £110,000 – which puts you £10,000 above the threshold and costs you £5,000 of your personal allowance. That alone could mean paying around £2,000 more in tax. But if you contribute £8,000 into your pension, the pension provider will claim basic rate tax relief and add this to your contribution to gross it up to £10,000. Your adjusted net income drops to £100,000, your full allowance is restored, and you save that £2,000 in tax – plus you’ve added a useful sum to your pension pot and you can claim back a further £2,000 of higher rate tax. It’s a practical way to keep more of your money while investing in your future.
If you contribute to a “net pay” arrangement pension scheme where your employer deducted your contributions from your pay before taxing it, you will have to contribute £10,000 but will reduce your tax by £6,000 so the end result is the same.
2. Donate to Charity (and Use Gift Aid)
Giving to charity can also bring your adjusted net income down. Under the Gift Aid scheme, when you donate to a registered charity, they can claim back the basic-rate tax, and if you’re a higher-rate or additional-rate taxpayer, you can claim the difference back via your tax return.
Here’s a more detailed example: Suppose your income is £110,000. At that level, you’ve lost £5,000 of your personal allowance, which means an extra £2,000 in tax. Now, let’s say you make a £8,000 donation to a registered charity using Gift Aid. The charity will claim back £2,000 of basic rate tax and you will be treated as having made a gross donation of £10,000. That donation reduces your adjusted net income to £100,000, which restores your full personal allowance.
The result? You reclaim the £2,000 you would have lost in tax plus a further £2,000 of higher rate tax, the charity gets a boost from your Gift Aid, and you’ve made a meaningful contribution to a cause you care about – all while cutting your effective tax rate.
And here’s the key point: while you’ve donated £8,000, the combination of restored personal allowance and higher-rate tax relief means that your real cost is only £4,000. In other words, you’re choosing to give to a cause you believe in, instead of handing that same money to HMRC.
3. Use Salary Sacrifice
If your employer offers salary sacrifice schemes – such as extra pension contributions, childcare, or even leasing an electric car – you might be able to reduce your gross income in a tax-efficient way. This can be particularly helpful if you’re sitting just above the £100,000 income threshold.
An Example: Take a bonus, for example. Instead of receiving it as cash (which could push you into the 60% tax band), you could sacrifice it into your pension or towards an electric vehicle lease. The result? You avoid losing your personal allowance and reduce both your income tax and National Insurance liability.
Electric car leasing via salary sacrifice has become especially popular. Under current rules, the Benefit-in-Kind (BiK) tax on fully electric cars is just 2% (rising slowly in future years), making it far cheaper to access an EV this way than to lease privately. The cost of the lease comes out of your gross salary, so you avoid income tax and NI on that amount. Meanwhile, your employer also saves on their National Insurance bill.
For example, if you lease a £40,000 EV through salary sacrifice, your gross income could drop to £96,000 – bringing your earnings below £100,000. That means you keep your full personal allowance, reduce your tax bill, and drive a brand-new car for less than you’d pay on the high street.
Not sure if your employer offers these schemes? It’s worth asking – and we can help you assess which ones make the most sense for your situation.
Why Mid-Year is a Great Time to Act
Most people wait until March to think about tax planning, but that’s often too late to act meaningfully. Midway through the tax year – say, around autumn – is actually the sweet spot. You’ve got a clear view of your income so far and enough time to make changes.
Whether it’s setting up a new pension contribution plan, making a charitable donation, or adjusting your salary packaging, doing it now means you’re not scrambling at the last minute.
A simple mid-year review can help you:
- Estimate your year-end income
- Plan pension contributions or donations in advance
- Avoid unpleasant surprises come April
How We Can Help
At Ward Goodman, we work with individuals across the income spectrum – but especially those in that awkward middle: not quite ‘wealthy’ enough for ultra-high-net-worth tax planning, but earning enough to get hit by these stealthy tax traps.
We can help you understand exactly where you stand, what options you have, and how to make the most of your money. That could mean advising on pensions, guiding charitable donations, or working with your employer on salary structuring.
And if you’re a company director, we can also help structure your remuneration in a way that works smarter for you.
If your income is hovering around that £100,000 mark – or if you think a future promotion or bonus might tip you over – now’s the time to get ahead of it.
