The £100,000 tax trap is an effective 60% marginal tax rate that applies to income between £100,000 and £125,140 in 2026/27. For every £2 you earn above £100,000, you lose £1 of your Personal Allowance — on top of 40% Income Tax, creating a combined effective rate of 60%.
How the Trap Works
In 2026/27, the Personal Allowance is £12,570. HMRC withdraws £1 of this for every £2 earned above £100,000. By £125,140, the allowance is fully gone:
The Solution: Pension Contributions
Pension contributions reduce your adjusted net income — the figure HMRC uses to calculate allowance withdrawal. Contributing £10,000 at £110,000 gross brings your adjusted income back to £100,000, restoring your full £12,570 allowance and saving up to £6,000 in tax.
- Salary sacrifice — most efficient: saves Income Tax AND National Insurance
- Personal pension / SIPP — also reduces adjusted net income; claim higher rate via Self Assessment
- Gift Aid donations — count towards adjusted net income reduction
Example: Earning £110,000 without planning costs you ~£6,200 in avoidable tax. A £10,000 salary sacrifice pension contribution eliminates the entire trap and increases your pension by the same amount.
Does It Affect Scotland?
Yes. Scottish taxpayers face the same Personal Allowance withdrawal but under Scotland's six-band system. The effective rates differ slightly, but the mechanism is identical and pension contributions are equally effective.
Calculate your take-home pay
Use PayKeep's free calculator for your exact figures — pension, student loan, tax code and all.
→ Model £100k Salary