Earn over £100,000 and HMRC quietly claws back your tax-free allowance, £1 for every £2. The result is a hidden 60% marginal tax rate between £100,000 and £125,140. Here is exactly how it bites, and how to claw it back.
There is a stretch of income in the UK tax system where earning more leaves you keeping barely a third of it. It sits between £100,000 and £125,140, and HMRC has never advertised it. There is no "60% rate" printed on any rate card, because officially the highest rate below the additional band is 40%. Yet for every extra pound earned in this zone you hand over 60p, and high earners routinely discover it only when a bonus or a profitable year leaves them strangely worse off than the payslip suggested. This is the personal allowance taper, and it is the single most punishing piece of the income tax code that almost nobody plans for.
The taper has been in place since 2010, when the £100,000 threshold was introduced. Crucially, that £100,000 line has never moved. Fifteen years of wage growth and inflation later, it catches a far wider group than it was designed for, and because the personal allowance itself is frozen at £12,570 until at least April 2028, the trap is widening every year through fiscal drag.
The rule is deceptively simple to state. Once your adjusted net income exceeds £100,000, your personal allowance falls by £1 for every £2 of income above that threshold. The allowance is £12,570 in 2025/26, so it takes £25,140 of excess income (twice £12,570) to remove it completely. That lands at exactly £125,140.
The arithmetic at the edges:
| Adjusted net income | Personal allowance remaining |
|---|---|
| £100,000 or below | £12,570 (full) |
| £105,000 | £10,070 |
| £110,000 | £7,570 |
| £115,000 | £5,070 |
| £120,000 | £2,570 |
| £125,140 or above | £0 |
The damage is not the lost allowance in isolation, it is what the lost allowance does to your marginal rate. Each extra £2 of income costs you £1 of allowance. That £1 was previously tax-free; now it is taxed at the 40% higher rate. So on that £2 you pay 40% on the income (80p) plus 40% on the £1 of allowance you just lost (40p), a total of £1.20 of tax on £2 of income. That is 60%.
Meet Daniel, an employed software engineer who has just been promoted. His adjusted net income for 2025/26 is £110,000, with no pension contributions and no other reliefs.
He is £10,000 over the threshold. His allowance is reduced by half of that, £5,000, leaving him with £7,570 of tax-free income instead of £12,570.
To see the trap clearly, compare the tax on his top £10,000 (the slice from £100,000 to £110,000) against what someone on exactly £100,000 pays on the same band:
Daniel keeps just £4,000 of his £10,000 pay rise. The effective marginal rate on it is 60%. It is entirely possible for a £5,000 pay rise that tips someone from £99,000 to £104,000 to deliver less net cash than expected, which is why some high earners actively decline bonuses or sacrifice them into pensions.
The taper is not only an employee problem. Consider Priya, a self-employed consultant whose taxable profit is usually around £85,000 but who landed a large contract this year, pushing profit to £118,000.
Her adjusted net income of £118,000 is £18,000 over the threshold, so she loses £9,000 of allowance (half of £18,000), leaving £3,570. On the £18,000 of profit above £100,000 she pays:
On top of this, as a sole trader Priya pays Class 4 National Insurance at 2% on profits in this band, nudging her true marginal rate to 62%. Because her profit spiked in a single year, a gross pension contribution is especially attractive: paying £18,000 into a personal pension reduces her adjusted net income to £100,000, restores the full £12,570 allowance, and means that £18,000 effectively cost her nothing in income tax while building her retirement pot. You can model the income tax and National Insurance on profit at different levels with the salary and income tax calculator.
The taper is measured against adjusted net income, which is not the same as your salary or your gross profit. Getting this right is the difference between falling into the trap and stepping around it.
Adjusted net income is broadly your total taxable income from all sources, then reduced by specific reliefs:
The deductions are the lever. Because pension contributions and Gift Aid both reduce adjusted net income pound for pound (on a gross basis), they pull you back below £100,000 directly. The detailed mechanics, including how to calculate the gross figure of a contribution, are covered in our personal allowance guide, which explains how the £12,570 allowance sits within the wider band structure.
The cruelty of the taper is that it punishes the marginal pound, not the average one. You can be on a healthy six figures and still face a higher effective rate on your next pound than a billionaire pays on theirs.
The cleanest escape is a pension contribution, because it tackles the trap at its root by reducing adjusted net income. If your adjusted net income is £110,000, a £10,000 gross pension contribution brings you back to £100,000 and restores the entire personal allowance.
The combined relief is remarkable. The £10,000 in our example would otherwise have suffered the 60% effective rate, so the contribution effectively costs a higher-rate taxpayer only £4,000 of net income while £10,000 lands in the pension. That is a 60% combined boost from tax relief and the restored allowance, before any investment growth. Salary sacrifice arrangements achieve the same result and additionally save National Insurance, which is why many employers offer them.
There are limits to bear in mind. Pension contributions only attract full relief up to the annual allowance (£60,000 in 2025/26, potentially tapered for very high earners), and you generally need relevant UK earnings at least equal to the contribution. The interaction between the personal allowance taper and the separate pension annual allowance taper for the highest earners is intricate; you can sketch out contributions and their effect using the pension planner.
Gift Aid works on the same principle. A donation of £8,000 to charity is grossed up to £10,000, and that £10,000 reduces your adjusted net income, so a charitable donor over £100,000 can both support a cause and reclaim their allowance. The taxpayer also reclaims higher-rate relief on the donation through Self Assessment.
Other practical levers depend on your situation:
One under-appreciated consequence of crossing £100,000 has nothing to do with income tax rates at all. Eligibility for Tax-Free Childcare and the 15 or 30 funded hours of childcare in England is lost the moment either parent's adjusted net income exceeds £100,000. Unlike the taper, this is a hard cliff edge, not a gradual taper.
For a parent with two young children in nursery, losing this support can be worth several thousand pounds a year. Combined with the 60% income tax effect, a working parent can face an effective marginal rate well above 100% on the income that tips them over £100,000, meaning a modest pay rise genuinely leaves the household poorer. This is one of the strongest cases for a pension contribution to stay under the line, and it is a calculation every affected parent should run deliberately rather than discover by accident.
The personal allowance itself is reserved to Westminster and is £12,570 across the whole UK, and the £100,000 taper threshold is identical too. What differs in Scotland is the rate at which the withdrawn allowance is taxed. Because Scottish taxpayers in this income range pay the 45% advanced rate (and the higher rate of 42% just below it), the lost allowance is clawed back at a steeper rate.
The result is an effective marginal rate of roughly 67.5% for Scottish taxpayers in the £100,000 to £125,140 band, rather than 60%. A Scottish taxpayer therefore has an even stronger incentive to use pension contributions to manage their adjusted net income. The wider differences in Scottish rates and bands are set out fully in our guide to the income tax rates and thresholds across the UK nations.
TapTax connects to your bank, categorises expenses automatically, and submits quarterly updates to HMRC. Free plan, no card required.
