The UK income tax system is relatively straightforward for most earners — but it contains a hidden trap for those earning between £100,000 and £125,140. In that range, your effective marginal tax rate is 60%, not 40%. Understanding this — and how to escape it — is one of the most valuable pieces of financial knowledge for UK higher earners.
UK Income Tax Rates 2025-26
| Income Band | Rate | Name |
|---|---|---|
| £0 – £12,570 | 0% | Personal Allowance |
| £12,571 – £50,270 | 20% | Basic Rate |
| £50,271 – £125,140 | 40% | Higher Rate |
| Over £125,140 | 45% | Additional Rate |
Note: Scottish taxpayers have different rates and bands set by the Scottish Parliament. The above applies to England, Wales and Northern Ireland.
The 60% Tax Trap: £100,000–£125,140
Between £100,000 and £125,140, your Personal Allowance is tapered away. For every £2 of income above £100,000, you lose £1 of your £12,570 Personal Allowance. Since the allowance was worth 40% tax relief (in the higher rate band), losing £1 of allowance costs you 40p in extra tax. On top of paying 40% income tax on that extra £1, you're effectively paying 40% + 20% (on the lost allowance) = 60% marginal rate.
Example: Income rises from £100,000 to £100,001.
That extra £1 costs: 40p income tax + 20p on lost allowance = 60p tax.
The full taper:
At £100,000: Personal Allowance still full £12,570.
At £110,000: PA reduced to £7,570 (£100K income + £10K = £5K PA lost).
At £125,140: PA is zero. PA completely gone (£25,140 above threshold ÷ 2 = £12,570 PA lost).
Above £125,140: the taper is complete, the effective rate drops back to 45%.
How to Escape the 60% Trap
- Pension contributions: Additional pension contributions reduce your adjusted net income (ANI). Contributing the excess above £100,000 into a pension brings your ANI below the taper zone. £10,000 contribution at £110,000 income = effective 60% relief. A 60% effective tax relief pension is extraordinarily attractive.
- Gift Aid donations: Charitable donations under Gift Aid also reduce adjusted net income. Every £100 donated costs you effectively £40 if you're in the 60% trap zone.
- Salary sacrifice: Pre-tax sacrifice arrangements (bike to work, childcare vouchers in grandfathered schemes, EVs through company) reduce adjusted net income.
- Bonus timing: If a bonus will push you into the trap, asking to defer it to a year where your base income is lower can save significant tax.
Worked Example — £80,000 Salary
Income: £80,000
Personal Allowance: £12,570 (full — income below £100,000)
Taxable: £67,430
20% × £37,700 (£12,571–£50,270) = £7,540
40% × £29,730 (£50,271–£80,000) = £11,892
Total Income Tax = £19,432
Effective income tax rate: 24.3%. Plus employee National Insurance.
Worked Example — £110,000 Salary
Income: £110,000
Personal Allowance: £12,570 − (£10,000/2) = £7,570
Taxable: £102,430
20% × £37,700 = £7,540
40% × £64,730 (£50,271 to £110,000 adjusted) = £25,892
Total Income Tax = £33,432
The extra £30,000 income above £80K generated £14,000 in extra tax — an effective marginal rate of 46.7% on that slice (plus NI).
PAYE: Pay As You Earn
PAYE is the system your employer uses to deduct income tax and National Insurance before paying your salary. Your tax code (e.g., 1257L) tells your employer how much tax-free income you have. The "1257" represents £12,570 (the PA) and "L" means you're entitled to the standard personal allowance.
HMRC sets your tax code. If your circumstances change (second income, benefit in kind, underpaid tax from a prior year), your code changes. You can check your tax code through your Personal Tax Account at HMRC's website.
Calculate your UK income tax
Open Income Tax Calculator →Source: HMRC, gov.uk. Tax Year 2025-26 (6 April 2025 – 5 April 2026). Not financial advice.