What is the £100,000 Trap? (& FAQs)

You may be familiar with the UK’s main income tax rate bands, but what about when your annual pay exceeds £100,000?

Reaching a six-figure salary is seen as a major milestone for many professionals but moving past £100,000 comes with some unexpected repercussions, especially for parents. This is known as the “£100,000 tax trap”: a hidden effective tax rate of over 60%.

If you’re closing in on the £100,000 mark, there are useful steps you can take to avoid the trap. The best approach is to be aware of your upcoming income milestones, speak to an accountant, and prepare in advance to be in the best possible position to deal with any impact.

The £100k Tax Trap Explained

The £100,000 tax trap is the unofficial name for an effective 60+% marginal tax rate that hits earnings between £100,000 and £125,140.

It happens because HMRC withdraws your personal allowance by £1 for every £2 of adjusted net income above £100,000.

Adjusted net income is your total taxable income minus pension contributions and Gift Aid donations.

In other words, each extra pound is taxed at 40% and costs you 50p of personal allowance, leaving you with no remaining personal allowance by the time you reach £125,140.

On top of this, for parents in England, 30 hours of funded childcare and tax-free childcare top-up (£2,000/child/year) are also lost.

How the Trap Works (Simple Example)

When your income sits at £100,000, your full allowance remains. At £110,000, you'll have lost £5,000 of personal allowance. That £5,000 is now taxable at 40%, which is an extra £2,000 of tax, on top of the £4,000 of higher-rate tax you'd have paid on the £10,000 anyway.

The graph below shows how your personal allowance tapers as your income rises:

Who is Affected?

The £100,000 trap affects a wide range of higher earners, including:

• Salaried high earning professionals
• Business owners paying themselves a salary/dividends
• Anyone with bonus, dividend, rental, or self-employment income that pushes adjusted net income over £100,000

How to Avoid the Tax Trap

There are ways that you can prepare for the tax trap, and potentially mitigate it entirely when your income passes £100,000, including:

• Pension contributions: this is the most common and effective option and involves redirecting any extra income to your pension. For example, an £8,000 personal net pension contribution (which would be grossed up to £10,000) at an income of £110,000 restores your full personal allowance and reduces adjusted net income, which is taxed at 40%.
• Salary sacrifice schemes: you can exchange part of your gross salary for an employer pension contribution before income tax and NI are applied, saving NI on top of income tax.
• Charitable donations (Gift Aid): charitable donations eligible for Gift Aid can reduce your adjusted net income for the £100,000 taper.
• Spreading dividends and bonus income across tax years: this can help keep adjusted net income below £100,000 in any single year.
• Shifting investment income to a lower-earning spouse: you can transfer income-producing assets so that the income uses their allowances and lower tax bands.

Common Mistakes to Avoid

There are some mistakes associated with the trap that you should ensure you avoid, such as:

• Ignoring bonuses pushing income over £100,000
• Not using personal allowances
• Assuming £100,000 is just "another threshold"
• Forgetting the impact on 30 hours of free childcare and tax-free childcare top-ups

£100,000 Tax Trap FAQs‍

1. Why is the £100,000 tax trap 60%?

Once your income passes £100,000, every extra £1 that you earn is taxed at 40% and you lose 50p of personal allowance. This means:

• You pay 40p tax on the £1 earned to income tax
• You lose 50p of personal allowance, which was previously tax-free but is now taxed at 40% = 20p
• Total = 60p ✓

Which is your 60% effective marginal rate.

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2. At what income do you lose your personal allowance?

You start to lose your personal allowance at £100,000, which gradually decreases by £1 for every £2 earnt until your income reaches £125,140, and it is all gone.

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3. Is the £100,000 tax trap still in place in 2026?

Yes. The personal allowance is frozen at £12,570 until April 2028, and the £100,000 taper threshold is unchanged.

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4. How can I avoid the £100,000 tax trap legally?

There are several ways to avoid the trap entirely or reduce its impact if your income is already in the £100,000–£125,140 band.

The most common methods include redirecting income to your pension and making charitable donations eligible for Gift Aid.

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5. Does this affect dividends or only salary?

Not just salary. Bonuses, dividends, rental income and other taxable income all also count toward the £100,000 threshold.

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6. Is it worth earning over £100,000?

Yes. You are still taking home more money overall due to the tax bands remaining in place. But the next £25,140 of income is taxed unusually heavily, so you should plan things like bonuses, dividends and pension contributions deliberately and carefully so that you aren’t pushed across the threshold by accident.

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7. How much pension contribution do I need to reduce it?

To reduce the amount that you are taxed, you need enough pension contributions to bring your adjusted net income below £100,000.

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If you’re getting close to reaching a £100,000 salary, make sure to plan ahead, speak with an accountant, and use your pensions strategically to get the best possible outcome.

Tax rules and rates can change, and individual circumstances vary. Please make sure to speak to a qualified accountant before taking any action.

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Read more:

• What is the Most Tax-Efficient Salary for 2026/27?