Between £100,000 and £125,140 of income, every extra £1 you earn costs you 60p in Income Tax in England, Wales and Northern Ireland, plus 2p of National Insurance. That's an effective 62% marginal rate, higher than the 45% additional rate paid by people earning far more.
Why it happens
Everyone gets a £12,570 Personal Allowance, but it's reduced by £1 for every £2 of adjusted net income over £100,000. So when you earn £2 more:
- the £2 itself is taxed at 40%, which is 80p
- £1 of allowance disappears, so another £1 of income becomes taxable at 40%, which is 40p
That's £1.20 of tax on £2, or 60%. At £125,140 the allowance is gone and the rate drops back to 40%, then 45% above £125,140.
What it means in pounds
| Salary | Personal Allowance | Income Tax | Take-home (rUK) |
|---|---|---|---|
| £100,000 | £12,570 | £27,432 | £68,557 |
| £110,000 | £7,570 | £33,432 | £72,357 |
| £120,000 | £2,570 | £39,432 | £76,157 |
| £125,140 | £0 | £42,516 | £78,111 |
A £25,140 pay rise from £100,000 to £125,140 adds just £9,553 to take-home pay.
How to get out of the trap
The taper is based on adjusted net income, not salary. Anything that reduces adjusted net income back towards £100,000 claws back your allowance, and saves tax at 60%.
- Pension contributions. On a £110,000 salary, sacrificing £10,000 into your pension reduces take-home pay by only £3,800. The other £6,200 is tax and National Insurance you no longer pay.
- Bonus sacrifice. If your employer allows it, paying a bonus straight into your pension avoids the trap on that bonus.
- Gift Aid donations. The grossed-up value of donations also reduces adjusted net income.
Pension tax relief is limited to 100% of your earnings and the £60,000 annual allowance. Use the pension calculator to compare salary sacrifice, net pay and relief at source on your own salary.
It can affect childcare support too
Going over £100,000 of adjusted net income can also stop you getting Tax-Free Childcare and some funded childcare hours, so the cost of crossing the line can be far more than the tax alone. Check the eligibility rules on GOV.UK if this applies to you.