Guide · Tax year 2026/27
The £100,000 tax trap: earn £10,000 more, keep £3,800
There's a stretch of the UK tax system where the official rates lie to you. The bands say 40%. Your payslip disagrees. Between £100,000 and £125,140, the effective tax on each extra pound is about 62% — higher than the top rate paid by millionaires. Here's why, with real numbers.
The mechanism: your allowance is being taken away
Everyone gets a Personal Allowance — £12,570 of income tax-free. But once you earn over £100,000, HMRC takes it back at a rate of £1 for every £2 you earn above the line. At £125,140 it's gone entirely.
Losing allowance means money that was taxed at 0% is suddenly taxed at 40%. For every extra £2 you earn in the trap you pay: 80p of extra 40% tax on the £2 itself, plus 40p of tax on the £1 of allowance you just lost — £1.20 of tax on £2 earned, a 60% rate, before National Insurance adds its 2%. Total: roughly 62%.
The trap in real numbers
| Gross salary | Personal Allowance | Income tax | Take-home |
|---|---|---|---|
| £100,000 | £12,570 | £27,428.40 | £68,561.00 |
| £110,000 | £7,570 | £33,428.40 | £72,361.00 |
| £125,000 | £70 | £42,428.40 | £78,061.00 |
At £125,140 the allowance reaches £0. Read the middle row: the £10,000 rise from £100,000 to £110,000 raises take-home by exactly £3,800. That is the trap, measured. (Tax follows HMRC's PAYE tables — code 1257L gives £12,579 of tax-free pay — matching HMRC's own estimator.)
Try it yourself: open the take-home calculator and step a salary from £99,000 to £101,000 — the calculator flags the trap automatically.
The pension fix
Pension contributions reduce your adjusted net income — the figure the taper is measured on. Contribute enough to get back under £100,000 and the allowance returns in full.
On a £110,000 salary, a £10,000 pension contribution (ideally by salary sacrifice) restores the full £12,570 allowance. The result: income tax drops from £33,428.40 to £27,428.40 and National Insurance falls by £200 too. Your take-home pay falls by only £3,800 compared with taking the £110,000 in cash — while £10,000 lands in your pension. You've converted a 62% tax rate into retirement savings at a £6,200 discount.
Watch the limits: the pension annual allowance is £60,000 for most people (it tapers for very high earners), contributions must be made within the tax year, and money in a pension is locked until minimum pension age. Parents should also know that crossing £100,000 can affect eligibility for tax-free childcare and funded hours — for some families that cliff is worth even more than the tax.
The short version
If you earn between £100,000 and £125,140, each extra pound is taxed at roughly 62%. A pension contribution big enough to pull you back to £100,000 is the single most valuable move in UK personal tax — which is why so many salaries in that band mysteriously sit at exactly £100,000 with very large pension contributions.
Common questions
What is the £100,000 tax trap?
Above £100,000 you lose £1 of Personal Allowance for every £2 you earn, until it is gone at £125,140. Combined with 40% income tax and 2% National Insurance, your effective tax rate on income in that band is about 62%.
How can I avoid the £100,000 tax trap?
The standard fix is pension contributions: they reduce your adjusted net income, restoring your allowance. On a £110,000 salary, a £10,000 contribution means your take-home falls by only £3,800 while £10,000 goes into your pension.
At what salary do you lose your Personal Allowance completely?
£125,140. The allowance falls by £1 for every £2 earned above £100,000, so it reaches zero at £100,000 + (2 × £12,570) = £125,140.
Does earning over £100,000 affect childcare help?
Yes — if either parent's adjusted net income is over £100,000, the family loses Tax-Free Childcare and the 30 funded hours. For some families that cliff is worth more than the tax itself, which is another reason pension contributions near the line are so common.