How You Can Beat the 60% Tax Trap

Lionbridge Wealth Insights

For many UK professionals, crossing the £100,000 income mark is a career milestone. But the celebration often fades once they discover one of the harshest quirks in the UK tax system: the 60% tax trap. This hidden tax band hits earners between £100,000 and £125,140, costing them more in marginal tax than even the Additional Rate (45%).

The good news? With the right planning, the 60% trap is entirely avoidable. Here’s how it works—and how you can beat it.

1. What Exactly Is the 60% Tax Trap?

The trap is triggered by the tapering of the Personal Allowance, the tax‑free £12,570 that most individuals receive.

Once your income exceeds £100,000, your Personal Allowance is withdrawn at a rate of £1 for every £2 you earn over that threshold. When combined with the 40% higher-rate income tax, this taper creates an effective marginal tax rate of 60% on income in the band from £100,000 to £125,140. [uksalaryta...home.co.uk]

In other words, for every extra £1 you earn in this range, you may keep only 40p, losing the other 60p to tax.

This isn't a separate tax band—it’s the mathematical effect of losing tax‑free income at the same time you incur higher‑rate tax.

2. Why More People Than Ever Are Being Pulled Into It

Income tax thresholds have been frozen since 2021 and will now stay frozen until at least April 2031, meaning rising wages push more earners above the £100,000 mark even without promotions.

HMRC estimates that 723,000 people fall into the 60% zone in the current year, rising to 850,000 by 2028–29—a dramatic increase from 300,000 in 2017–18.

3. The Hidden Costs—It’s Not Just Tax

For parents, there’s an additional sting:If either parent’s Adjusted Net Income exceeds £100,000, they lose access to:

• Tax‑free childcare

• 30 hours of free childcare

There is no taper—lose £1 over the threshold, and you lose the benefit entirely. [thp.co.uk]

That means even modest bonuses or dividends can leave families worse off overall once the tax impact and benefit loss are combined.

4. The Most Effective Way to Avoid the 60% Trap: Pension Contributions

Pension contributions reduce your adjusted net income, which determines whether you fall into the trap. This makes pensions the most powerful planning tool.

✅ Option 1: Personal Pension Contributions

Money you pay into your pension:

• Reduces your taxable income

• Restores part or all of your Personal Allowance

• Gains tax relief instead of being taxed at 60%

Example: A £10,000 bonus that would have cost you £6,000 in extra tax could instead be redirected into your pension—giving you the full £10,000 working for your retirement.

[deadsimple...ting.co.uk]

✅ Option 2: Salary Sacrifice (The Gold Standard)

Salary sacrifice is even more tax‑efficient. Rather than receiving income and contributing to a pension afterwards, you agree to reduce your taxable salary and have the difference paid directly into your pension.

Benefits include:

• No income tax on the sacrificed amount

• No employee National Insurance

• Often reduced employer NI, which some employers add to your pension

• Full Personal Allowance preserved

In many cases, salary sacrifice offers 25%–60% more value than simply making a personal pension contribution because of combined tax and NI savings. [getpenfold.com]

5. Other Legitimate Ways to Beat the Trap

✅ Use Gift Aid Donations

Gift Aid reduces your adjusted net income, helping bring you back below £100,000.

✅ Time Income Carefully

Because bonuses, dividends, rental profits, and even savings interest count toward the threshold, careful timing (e.g., deferring bonuses or staggering dividends) can keep you outside the trap zone. [deadsimple...ting.co.uk]

✅ Use Allowances Strategically

Where feasible, split income between spouses—especially for business owners—to avoid pushing one partner above the threshold.

6. Example: How a High Earner Escapes the Trap

Olive earns £110,000, putting her £10,000 into the 60% zone.

• She loses £5,000 of her Personal Allowance

• Pays 40% on the extra £10k

• Pays 40% on the £5k allowance lost

➡ Total tax: £6,000➡ Effective rate: 60% [deadsimple...ting.co.uk]

Her solution?She contributes £10,000 into her pension (or via salary sacrifice), reducing her adjusted net income back to £100,000. She:

• Restores the full Personal Allowance

• Avoids the 60% rate entirely

• Boosts her pension by £10,000

• 
  

7. Lionbridge Wealth Summary: How to Beat the 60% Tax Trap

Strategy	Effectiveness	Why It Works
Salary sacrifice	⭐⭐⭐⭐⭐	Cuts tax + NI + restores allowance
Personal pension contributions	⭐⭐⭐⭐	Reduces adjusted income, avoids 60% band
Gift Aid donations	⭐⭐⭐	Reduces adjusted net income
Income timing (bonuses/dividends)	⭐⭐⭐	Avoids pushing you into trap
Spousal income planning	⭐⭐	Useful for business owners or flexible earners

Final Thoughts from Lionbridge Wealth

The 60% tax trap is one of the most severe and least understood features of the UK tax system. But it’s also one of the easiest to escape—as long as you act before tax year-end.

Using pensions, salary sacrifice, and smart income planning, high earners can not only avoid the 60% marginal rate but also build significantly more long‑term wealth.

If you would like a personalised plan to help eliminate the trap and maximise your take‑home income, Lionbridge Wealth is here to support you.