The £100k tax trap: how it works, what it costs and how to get out of it

Why £100,000 is where tax gets strange

Everyone in the UK gets a personal allowance of £12,570 a year, the slice of income on which no income tax is due. Once your adjusted net income passes £100,000, that allowance starts to shrink. You lose £1 of it for every £2 of income over the line. By £125,140 it has gone completely.

That taper creates a band where your marginal rate is much higher than any official band. Each extra £2 of salary in the taper zone:

• is taxed at 40%, which is 80p, and
• removes £1 of allowance, which turns £1 of previously tax-free income into income taxed at 40%. That's another 40p.

That's £1.20 of income tax on £2 of extra income, an effective 60% rate. Employee National Insurance adds another 2% above £50,270, so the combined rate on salary in the band is 62%.

What the trap costs in 2026/27

The clearest way to see the trap is to compare take-home pay at different salaries. These figures come from our tax engine for 2026/27, outside Scotland, with a 1257L code, no pension and no student loan.

Going from £100,000 to £125,140, an extra £25,140 of pay, adds just £9,553.20 to take-home pay. You keep 38p in every pound. Above £125,140 the allowance has already gone, so the marginal rate falls back to 45% income tax plus 2% NI. Between £125,140 and £130,000 you keep 53p in every pound, noticeably more than in the band below.

Scotland: 69.5%

The personal allowance is set UK-wide, so Scottish taxpayers face the same taper. But in Scotland, income between £75,000 and £125,140 is taxed at the 45% Advanced rate, not 40%. Each extra £2 in the taper costs 90p plus 45p on the lost allowance, which is 67.5%. With 2% National Insurance, that's 69.5%.

In 2026/27, a Scottish taxpayer earning £110,000 takes home £68,307.35, against £65,257.35 at £100,000. The extra £10,000 of salary adds just £3,050 to take-home pay.

The childcare cliff at the same line

For parents, the tax taper is often not the most expensive thing that happens at £100,000. Two of the most valuable forms of childcare support use the same test: neither parent can have an adjusted net income above £100,000.

• Tax-Free Childcare. The government adds £2 for every £8 you pay in, worth up to £2,000 a year per child under 12, or £4,000 for a disabled child.
• Funded childcare hours for working parents in England. These now cover up to 30 hours a week, from nine months old until a child starts school.

Unlike the personal allowance, these don't taper. At £100,000 of adjusted net income you keep them all; a pound over and you lose them all, for every child. For a family with two children in nursery, that can mean losing support worth well over £10,000 a year, depending on local fees.

That is why someone just over £100,000 can be worse off than someone just under it. The £100k tax trap calculator page works through an example of a parent on £104,000.

Four ways out

The answer in every case is to reduce adjusted net income, not salary as such. These are the main routes, from most to least efficient for most employees.

1. Pension salary sacrifice

Sacrificing salary into your workplace pension lowers your salary itself, so it saves income tax, National Insurance and the lost allowance. On £110,000, a £10,000 sacrifice restores the full allowance and cuts take-home pay by just £3,800. Your pension gets £10,000, so each pound costs you 38p.

On £125,140, sacrificing the full £25,140 above the line costs £9,553.20 of take-home pay for £25,140 of pension. In Scotland, a £10,000 sacrifice on £110,000 costs £3,050, about 30p in the pound. The salary sacrifice guide covers the knock-on effects on mortgages and maternity pay.

2. Personal pension contributions (relief at source)

If salary sacrifice isn't available, paying into a personal pension or SIPP does almost the same job. You pay in from taxed income and the provider adds 20% basic-rate relief. To reduce adjusted net income by £10,000, you pay £8,000 and the provider adds £2,000.

The rest of the relief comes through Self Assessment, and it's bigger than usual because it restores your allowance. On £110,000, the £10,000 gross contribution cuts your income tax bill by £4,000. After the provider's £2,000 and that £4,000, the net cost is £4,000. That's £200 more than salary sacrifice, because there's no National Insurance saving. You must claim the extra relief yourself. If you don't, HMRC won't apply it automatically.

3. Gift Aid

Charitable donations under Gift Aid work the same way. A donation of £8,000 becomes £10,000 for the charity, and the grossed-up £10,000 reduces your adjusted net income. On £110,000, that brings you to £100,000 and the tax saving is £4,000, again through Self Assessment. The charity gets £10,000 for a net cost to you of £4,000.

This only makes sense if you were going to give to charity anyway. It is a reason to give in a year when your income is in the taper, rather than a reason to give at all.

4. Timing bonuses and income

If you're paid a large bonus, ask whether part of it can be sacrificed into your pension. Many employers offer bonus sacrifice, and it's often the most efficient way to deal with a one-off spike in income. Self-employed people and company directors have more flexibility over when income is taken, but should get advice on how dividends and salary interact with the taper.

Mistakes that keep people in the trap

Measuring the wrong income. The test is adjusted net income for the whole tax year, not your salary. A bonus paid in March, interest on large cash savings or a rental profit can all push you over. Check your expected full-year figure before the end of the tax year, when there's still time to make a pension contribution.

Forgetting to claim relief. Relief-at-source contributions and Gift Aid only restore the allowance if you tell HMRC, usually on a Self Assessment return. Many people pay in and never claim.

Testing household income. The childcare limit applies to each parent separately. A couple earning £90,000 each keeps full support, while a single earner on £101,000 loses it.

Overshooting. There's no extra benefit to cutting adjusted net income below £100,000 for the taper itself. Extra pension saving below that point gets 40% relief, which is still good, but not the 60% available in the band.

Is it worth staying in the trap?

For some people the honest answer is yes. Pension money is locked away until at least 55, rising to 57 in April 2028. If you need the cash now, perhaps for a house deposit, paying 62% on part of your income may be a price worth paying for flexibility. The trap is expensive, but it's a cost, not a penalty for earning more: you always keep at least 38p of each extra pound.

What rarely makes sense is to ignore it. Spend ten minutes with the £100k tax trap calculator before the end of each tax year. The difference between acting and not acting is often thousands of pounds.