The UK 60% Marginal Tax Trap: How the £100k Cliff-Edge Works
In the UK, earnings between £100,000 and £125,140 are subject to one of the steepest marginal tax traps in the developed world. Because the £12,570 tax-free Personal Allowance is clawed back by £1 for every £2 earned, your effective marginal tax rate reaches 60% before National Insurance.
1. Why the 60% Tax Trap Exists
Under Section 35 of the Income Tax Act 2007, an individual’s Personal Allowance is reduced where their "adjusted net income" exceeds £100,000. For every £2 of income above £100,000, £1 of allowance is withdrawn. For example, if you earn £110,000, you lose £5,000 of your tax-free allowance. That £5,000 is now taxed at 40% (costing £2,000), while the £10,000 of extra salary is also taxed at 40% (costing £4,000). You pay £6,000 in tax on £10,000 of extra income—an effective rate of exactly 60%.
2. Factoring in National Insurance (62% Total Deduction)
Income above £50,270 is also subject to employee Class 1 National Insurance at 2%. When added to the 60% effective income tax rate, an earner between £100,000 and £125,140 loses 62p of every additional £1 earned. If student loan repayments (Plan 2 at 9% or Postgraduate at 6%) apply, the marginal deduction rate can surpass 71% to 77%.
3. Loss of Tax-Free Childcare & 30 Hours Free Childcare
The £100,000 threshold also functions as a hard cliff-edge for government childcare support. If either parent earns £100,001 in adjusted net income, the family immediately loses access to Tax-Free Childcare (worth up to £2,000 per child per year) and 30 hours of free childcare for 3- and 4-year-olds.
4. How to Mitigate the Trap with Pension Contributions
Because the taper is based on "adjusted net income" rather than gross salary, gross contributions into a registered personal or workplace pension reduce your relevant income. Contributing a bonus or salary sacrifice amount of £15,000 on a £115,000 salary brings adjusted net income down to £100,000, completely restoring your £12,570 allowance and saving £9,000 in immediate income tax and National Insurance.
All figures, threshold ceilings, and contribution formulas in this guide are grounded directly in published legislation from the HM Revenue & Customs (HMRC) Personal Allowance Guidance ↗ .