The £100k tax trap, explained: the 60% band and how a pension contribution escapes 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 of income tax stop at 45%.

Why £100,000 is a cliff edge

The personal allowance is £12,570. Once an individual’s adjusted net income passes £100,000, that allowance is withdrawn at £1 for every £2 above the threshold, reaching nil at £125,140.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 anddrags 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 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% once the 2% National Insurance is added. The tax trap calculator shows both, with a residence toggle.

The benefits you also lose

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, so a household with children meets an even steeper effective rate in that band. Tax-Free Childcare (up to £2,000 per child) and the working-parent funded hours work differently: the moment either parent’s adjusted net income passes £100,000 they are lost in full, with no taper. For a family using childcare, the £18,000 over £100,000 can be the most expensive money they earn.

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

How a pension contribution escapes it

A gross pension contribution reduces adjusted net income £1 for £1. The trap is defined by adjusted net income, so the escape is mechanical: contribute enough to bring adjusted net income back to £100,000 and the personal allowance — and the childcare — are restored, while the contribution still lands in the pension. Relief in the band runs at that 60% (or 67.5%) effective rate, so a £1 contribution can cost as little as 40p net. Add a family’s reclaimed childcare and the contribution can more than pay for itself.

Salary sacrifice does the same job for income tax and also saves employee National Insurance on the sacrificed pay, so it costs a little less again. The one thing to check is the annual allowance: the contribution must fit within this year’s allowance plus carry-forward.

Put your own figures in: the £100k / 60% tax trap calculator sets a target adjusted net income, solves for the contribution needed, and prices what it actually costs you net of relief, child benefit and childcare.