The £100k tax trap, explained: the 60% band and how pension contributions interact with it

The “£100k tax trap” is a band of income where each extra pound costs 60p in tax — or 67.5p in Scotland — before National Insurance. It runs from £100,000 to £125,140. No tax rate creates it; the withdrawal of the personal allowance does, while the headline rates stop at 45% in the rest of the UK (48% in Scotland).

Why £100,000 is a cliff edge

The personal allowance is £12,570. Once an individual’s adjusted net income (the adjusted net income calculator works it out) passes £100,000, that allowance is withdrawn at £1 for every £2 above the threshold, reaching nil at £125,140. So each extra £1 in the band is taxed at the 40% higher rate and drags 50p of previously tax-free allowance into tax at 40%. The effective marginal rate is 60%.

ITA 2007 s.35 — abatement of the personal allowance above £100,000.

It is worse in Scotland

The personal-allowance taper is UK-wide. The rate at which the recovered allowance is taxed is not. A Scottish taxpayer’s non-savings income in this band pays the 45% advanced rate, so the withdrawal adds 22.5% (45% × ½) on top — an effective 67.5% between £100,000 and £125,140, or about 69.5% on employment earnings once the 2% National Insurance is added. Savings and dividend income stay on UK-wide rates. If the lost personal allowance would otherwise shelter non-savings income taxed at 45%, an extra £1 of taxable interest costs 62.5p and taxable dividends 58.25p in 2026/27. Other income mixes produce different effective rates. The tax trap calculator shows both, with a Scottish taxpayer option.

What else adjusted net income affects

Adjusted net income drives more than the allowance. Between £60,000 and £80,000 the High Income Child Benefit Charge claws back 1% of Child Benefit for every £200 of income. That lifts the effective rate above the 40% higher rate: at 2026/27 rates about 47% with one child, 52% with two and 56% with three, and over 60% from four children (before National Insurance). Tax-Free Childcare and, in England, the working-parent funded-hours entitlement work differently: neither is available if either parent expects adjusted net income above £100,000. The actual value at stake depends on eligible childcare spend, child age and the other scheme rules; England’s universal 15 hours for 3- and 4-year-olds are separate.

ITEPA 2003 s.681B–681H (HICBC) ; gov.uk/tax-free-childcare (the £100,000 cliff).

How a pension contribution interacts with it

A gross relief-at-source pension contribution reduces adjusted net income £1 for £1. The trap is defined by adjusted net income, so that contribution can bring ANI back towards £100,000 while the contribution lands in the pension. That can restore personal allowance and may satisfy the childcare income test, subject to timing and every other eligibility condition. Relief in the taper band can make a £1 contribution cost as little as 40p net in a simple rUK case (32.5p in the equivalent Scottish band); childcare support is not guaranteed cash and must be based on actual entitlement and spend.

Salary sacrifice can also reduce ANI and save employee National Insurance on the sacrificed pay. Its income-tax result can differ from relief at source or net pay depending on taxable income, income mix and contribution size. Scheme terms, minimum-wage rules and the annual allowance — including any available carry-forward — all need checking.

Put your own figures in: the £100k / 60% tax trap calculator sets a target adjusted net income and illustrates the additional contribution and modelled tax effects. Treat any childcare amount as a scenario, not a confirmed award.