A hidden marginal tax rate that affects workers earning between £100,000 and £125,140 is often dubbed a “tax trap”, and research suggests it’s shaping career decisions. However, there are ways you might mitigate the additional tax charge without putting the brakes on your career progression.
The Personal Allowance is £12,570 in 2026/27, and you can usually earn this amount before Income Tax is due.
However, the Personal Allowance starts to taper if your earnings exceed £100,000. For every £2 that your income exceeds this threshold, your Personal Allowance is reduced by £1. You lose your Personal Allowance completely once your annual income reaches £125,140. In effect, this means you could pay tax at a rate of 60% on this portion of your income.
As Income Tax allowances and thresholds are currently frozen until April 2031, more people could find they face this hidden higher rate of tax.
In addition, if your income exceeds £100,000, you could lose childcare benefits. So, families with young children may be doubly affected if their income exceeds the threshold.
The tax trap could affect career decisions
According to an article in FT Adviser (22 April 2026), the implications of the 60% tax trap have affected how some workers view career progression opportunities.
A poll of 1,000 workers earning between £90,000 and £125,000 at one company found that as a result of the tax trap:
- 28% had turned down a promotion
- 26% refused a bonus
- 24% declined a pay rise.
While the above could seem like a sensible approach from a tax perspective, it’s a short-term view. Turning down a promotion now could limit your long-term prospects and earning potential.
In some cases, there might be steps you can take to reduce your overall Income Tax bill. This could allow you to pursue new career challenges while avoiding an effective tax rate of 60%.
3 ways you might avoid the 60% tax trap
1. Increase your pension contributions
Topping up your pension could reduce the amount of Income Tax you pay and improve your income in retirement.
Your Income Tax liability is calculated after pension deductions, so it could be a useful way to keep your taxable income under the £100,000 threshold. In addition, pension contributions typically benefit from tax relief at your marginal rate, so your pension will be boosted even further.
In some cases, your employer may increase the sum they contribute to your pension when you do.
Keep in mind that total pension contributions are usually limited by the Annual Allowance. In 2026/27, the Annual Allowance is £60,000, though you may only claim tax relief up to 100% of your annual earnings. Your Annual Allowance may be lower if you earn more than £200,000 or have already taken a flexible income from your pension.
If you haven’t used your Annual Allowance in previous tax years, you may be able to carry unused allowances forward for up to three years. So, if you want to contribute a significant amount to your pension, it may be worth reviewing your previous deposits.
2. Take advantage of salary sacrifice schemes
Check if your workplace offers salary sacrifice schemes where you can give up a portion of your salary in exchange for a non-cash benefit.
It’s important to consider whether the benefit would be useful for you, but you might have the option to use salary sacrifice to access childcare vouchers or private medical insurance. This strategy could reduce your net income so you may be able to avoid the tax trap.
3. Make donations from your salary
Charitable donations you make directly from your salary could reduce your adjusted net income. So, if you already support good causes, you might want to consider whether you’d benefit from changing how you make donations to improve your tax efficiency.
Talk to us about your tax position
As your income rises, your tax position may become more complex. We’re here to help you understand where your finances could be more tax-efficient and how this could fit into your wider financial plan. Please contact us to arrange a meeting.
Please note:
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.