How to Escape the 60% Tax Trap in 2025-26

3 min read · Published 2026-02-20 · Reviewed 2026-03-19

If you earn between £100,000 and £125,140, you're caught in the 60% tax trap — one of the most misunderstood features of the UK tax system.

What Is the 60% Tax Trap?

For every £2 you earn above £100,000, HMRC claws back £1 of your Personal Allowance (currently £12,570). This creates an effective marginal tax rate of 60% in the £100k–£125,140 band:

  • 40% income tax (higher rate)
  • 20% effective rate from losing your Personal Allowance (£1 lost for every £2 earned = 40% × 50% = 20%)
The hidden cost

Someone earning £125,140 loses their entire Personal Allowance — paying an extra £5,028 in tax compared to what you'd expect from the standard 40% rate alone.

Who Is Affected?

Anyone with adjusted net income (ANI) between £100,000 and £125,140 in the 2025-26 tax year. Your ANI is your total income minus:

  • Pension contributions (gross amount for Relief at Source; pre-tax for Salary Sacrifice)
  • Gift Aid donations (grossed up)
  • Trading losses

Three Strategies to Escape

1. Pension Contributions (Most Effective)

Making pension contributions reduces your ANI. If your salary is £105,000, contributing £5,000 to your pension brings your ANI to £100,000 — restoring your full Personal Allowance.

The real return

A £5,000 pension contribution in the 60% trap zone effectively costs you just £2,000 in take-home pay. That's because you get 40% income tax relief plus the restored 20% from your Personal Allowance — a 60% effective tax relief rate.

2. Salary Sacrifice

If your employer offers salary sacrifice, this is even more powerful. Your gross salary is reduced before NI is calculated, so you save an additional 2% (or 8% below the UEL) in National Insurance.

3. Gift Aid Donations

Charitable donations through Gift Aid are grossed up by 25% and deducted from your ANI. A £4,000 donation (£5,000 gross) reduces your ANI by £5,000.

Try the Calculator

Use our 60% Tax Trap Calculator to see exactly how much you could save:

Open the Tax Trap Calculator →

Common Mistakes

  1. Ignoring bonus months — A one-off bonus can push you into the trap temporarily
  2. Forgetting taxable benefits — Company car, private medical insurance, and other BIK increase your ANI
  3. Not timing pension contributions — Relief at Source contributions in March still count for the current tax year

FAQ

Q: Does the 60% trap apply to Scottish taxpayers? Yes. The Personal Allowance taper applies to all UK taxpayers regardless of region. Scottish taxpayers have different income tax rates, but the PA taper rules are the same.

Q: Can I split income with my spouse to avoid the trap? No — each person's ANI is calculated individually. However, if your spouse earns below £12,570, you may benefit from Marriage Allowance (a separate £252/year saving).

Q: Is it worth making pension contributions just to escape the trap? Almost always yes, unless you have an immediate cash need. The 60% effective relief rate makes pension contributions in this zone exceptionally tax-efficient.