UK tax guide · 2026/27
The £100k Tax Trap Explained
Between £100,000 and £125,140, a quirk in how the Personal Allowance is withdrawn creates an effective marginal tax rate of around 60% — far higher than the headline 40% or 45% rates. This guide explains exactly why it happens, shows the numbers, and covers the planning strategies most commonly used to deal with it.
⚠ The trap in one sentence
For every £2 of income above £100,000, you lose £1 of Personal Allowance — meaning you pay tax on the extra income and pay tax on the allowance you've lost, simultaneously.
Effective marginal rate in the trap zone: ~60%
40% income tax on the extra £1 + 40% tax on the £0.50 of allowance lost = effectively 60p tax on every extra £1 earned between £100,000 and £125,140.
How the Personal Allowance taper works
The standard Personal Allowance for 2026/27 is £12,570. Once your adjusted net income exceeds £100,000, HMRC reduces this allowance by £1 for every £2 of income above the threshold. The maths:
- At £100,000 ANI — full £12,570 allowance retained
- At £110,000 ANI — allowance reduced by £5,000 → £7,570 remaining
- At £120,000 ANI — allowance reduced by £10,000 → £2,570 remaining
- At £125,140 ANI — allowance fully withdrawn → £0
- Above £125,140 — 45% additional rate applies (no allowance)
Effective marginal rate by income level (England/Wales/NI 2026/27)
Worked examples — the numbers in full
These are deterministic calculations using 2026/27 England/rUK rates. All figures are annual, before student loans or benefits-in-kind.
| Annual salary |
Personal Allowance |
Income Tax |
Employee NI |
Take-home |
Extra earned |
Extra kept |
| £90,000 | £12,570 | £27,432 | £3,810 | £58,758 | — | — |
| £100,000 | £12,570 | £27,432 | £4,011 | £68,557 | £10,000 | £9,799 |
| £110,000 | £7,570 | £33,432 | £4,211 | £72,357 | £10,000 | £3,800 |
| £120,000 | £2,570 | £39,432 | £4,411 | £76,157 | £10,000 | £3,800 |
| £125,140 | £0 | £42,488 | £4,514 | £78,138 | £5,140 | £1,981 |
| £130,000 | £0 | £44,738 | £4,611 | £80,651 | £4,860 | £2,513 |
Key insight: Earning an extra £10,000 between £100,000 and £110,000 only increases take-home pay by roughly £3,800 — an effective retention rate of 38p in the pound. Once you're past £125,140, an extra £10,000 earns you back around £5,500 — much better.
Trap zone
~60%
Effective marginal rate
Allowance lost
£12,570
At £125,140 income
Trap width
£25,140
£100k to £125,140
How pension contributions fix it
Gross pension contributions (whether via salary sacrifice, personal contributions to a SIPP, or employer contributions) reduce your adjusted net income (ANI). ANI is the figure HMRC uses to test the taper — so reducing it can restore your Personal Allowance.
Example: salary of £120,000, pension contribution of £20,000
- Without pension: ANI = £120,000 → PA = £2,570 → Income Tax = £39,432 → Take-home ≈ £76,157
- With £20,000 gross pension: ANI = £100,000 → PA = £12,570 → Income Tax = £27,432 → Take-home ≈ £88,357
- Benefit: £12,200 more in take-home + £20,000 going into pension
At £120,000, a £20,000 pension contribution costs £7,800 in reduced take-home but delivers £20,000 into your pension — an effective uplift of £12,200. That's a 256% return on the net cash outlay.
Other ways to reduce ANI include Gift Aid donations (which extend your basic rate band), making pension contributions on behalf of a spouse, or restructuring employment income through a company.
The interaction with Child Benefit
If either partner in a household claims Child Benefit and one person's ANI exceeds £60,000, the High Income Child Benefit Charge kicks in. By £80,000, the benefit is fully clawed back via the tax system. This adds another layer of effective taxation on income in that range on top of the PA taper.
Combined, these effects can push effective marginal rates even higher than 60% for households with children claiming Child Benefit and income in the £100k–£125k range.
Frequently asked questions
Does this apply to Scotland?
The Personal Allowance taper applies UK-wide — it is a UK-level rule. However, Scottish Income Tax rates and bands differ, so the exact effective marginal rate in the trap zone is slightly different for Scottish taxpayers.
What is "adjusted net income"?
Adjusted net income (ANI) is broadly your total income from all sources minus gross pension contributions, Gift Aid donations (extended), and certain other reliefs. It is not the same as gross salary — bonus, rental income, dividends, and savings interest all count towards it.
Can I just avoid taking a bonus to stay below £100k?
Yes — deferring income or asking for benefits-in-kind instead of cash can keep ANI below £100,000. However, this requires negotiation with an employer and is not always possible. Pension contributions are often a simpler and more flexible tool.
Is there a limit on how much pension I can contribute?
The annual allowance for pension contributions is £60,000 for 2026/27 (or 100% of your earnings if lower). There is also carry-forward, which allows unused allowance from the previous three tax years to be added. For very high earners, the tapered annual allowance may reduce this. Speak to a financial adviser for personal guidance.
What if my income is only slightly over £100,000?
Even a small amount over the threshold triggers the taper on that portion. For example, at £102,000, you lose £1,000 of allowance and the effective rate on that £2,000 over threshold is already ~60%. A relatively small pension contribution can bring ANI back to exactly £100,000 and avoid the trap entirely.
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