The £100,000 tax trap: how the personal allowance taper works and how to escape it
There is a stretch of the UK income tax system that does not appear in any official rate table. Between £100,000 and £125,140, the effective marginal rate is 60% in England, Wales and Northern Ireland, and 67.5% in Scotland. HMRC does not call it a trap. But the maths is unambiguous, and the pension solution that removes it is one of the most valuable tax planning moves available to anyone earning in that range.
This guide explains how the trap works, what it costs, where the compounding effects come from, and exactly how pension contributions can help you escape it.
What the trap is
The personal allowance for 2026/27 is £12,570. This is the amount you can earn before paying any income tax. For most people it applies in full. But for those earning above £100,000, it starts to disappear.
For every £2 of adjusted net income above £100,000, you lose £1 of personal allowance. That process continues until, at £125,140, the personal allowance has gone entirely. The maths: £12,570 multiplied by 2 is £25,140, and £100,000 plus £25,140 is £125,140.
This creates an effective marginal rate of 60% on income between £100,000 and £125,140 in England, Wales and Northern Ireland. In Scotland, where the advanced rate is 45% rather than 40%, the effective marginal rate is 67.5%. Neither of these is an official tax rate. But the effect is entirely real.
For every £2 you earn above £100,000, you pay income tax on those £2 as normal. But you also lose £1 of your personal allowance, which means £1 that was previously tax-free becomes taxable. In the rest of the UK, 40% on £2 plus 40% on the extra £1 comes to £1.20 tax on £2 of earnings: 60%.
Why it matters more than most people realise
HMRC estimates 2.06 million taxpayers will lose some or all of their personal allowance in 2026/27. The £100,000 threshold has not been adjusted since it was introduced in 2010. With wages rising and thresholds frozen, more people are pulled in every year.
Here is a plain worked example. Someone earning £110,000 has an adjusted net income £10,000 above the threshold. For every £2 above £100,000, they lose £1 of personal allowance. So they lose £5,000 of allowance.
That £5,000 would have been tax free. At 40% income tax, losing it costs them £2,000 extra. On top of that, they also pay 40% on the £10,000 of income above £100,000, which is another £4,000. Total income tax on that £10,000 slice: £6,000. Effective rate on that slice: 60%.
Income above £100,000: £10,000
Personal allowance lost: £5,000 (£1 for every £2 above the threshold)
Tax on the extra income at 40%: £4,000
Tax on the lost allowance at 40%: £2,000 (income that would have been tax-free)
Total extra tax on that £10,000 slice: £6,000
The compounding effect
The taper does not just affect income tax. It interacts with other reliefs and benefits in ways that make the overall cost even higher for some people.
Tax Free Childcare is one of the most significant. To qualify, neither parent can have an adjusted net income above £100,000. Losing eligibility costs up to £2,000 per child per year in government top-up payments. For a household with two young children, the combined cost of the taper and lost Tax Free Childcare can easily exceed £10,000 for the year.
The High Income Child Benefit Charge also starts to bite from £60,000, though the pension fix that helps there overlaps with the solution for the taper. See the child benefit tax charge guide for the full picture on that interaction.
Tax Free Childcare eligibility depends on adjusted net income being below £100,000 for both parents. A pension contribution that brings your income just below that threshold can preserve up to £2,000 per child per year in government top-up payments.
The pension solution
Pension contributions reduce adjusted net income. This is the single most effective tool for escaping the trap, and the maths are unusually compelling.
Someone earning £110,000 who makes a £10,000 pension contribution reduces their adjusted net income to £100,000. They restore their full personal allowance, saving £2,000 in income tax. They also receive 40% income tax relief on the contribution itself, saving a further £4,000. Total tax saved on a £10,000 contribution: £6,000. Effective relief rate on that contribution: 60%.
Personal allowance restored: £12,570
Tax saving from restored allowance: £2,000
Income tax relief on contribution at 40%: £4,000
Total tax saved: £6,000
Salary sacrifice is the most efficient mechanism where your employer offers it, because it also saves National Insurance contributions on top of income tax. A personal contribution to a relief at source pension or SIPP achieves the same income tax result. You claim the additional relief above the basic 20% automatically added at source via your Self Assessment tax return.
The key point is that a contribution does not need to be large. It only needs to be large enough to bring adjusted net income below £100,000. For someone earning £101,000, that is a £1,000 contribution. The marginal value per pound contributed in that zone is exceptionally high.
Calculate your personal allowance and what it costs you
Enter your income and see your exact allowance, the cost of the taper, and the pension contribution needed to escape it.
The Scotland difference
The trap works identically in Scotland, but the effective marginal rate is higher. Scotland's advanced rate applies to income between £75,000 and £125,140 at 45%. When the personal allowance taper is applied on top, the effective marginal rate between £100,000 and £125,140 is 67.5%.
In Scotland, the personal allowance taper creates an effective marginal rate of 67.5% between £100,000 and £125,140. The pension solution works the same way. For every £1 contributed in that band, 67.5p comes back in tax relief.
The pension solution works identically. The saving per pound contributed in the taper zone is 67.5p in Scotland versus 60p in England, Wales and Northern Ireland. For Scottish taxpayers, the case for making a pension contribution to bring adjusted net income below £100,000 is even more compelling.
What to do if you are in the trap
Start by calculating your adjusted net income. This is your gross income minus any pension contributions, gift aid donations, and certain other deductions. If it is between £100,000 and £125,140, you are in the taper zone.
Work out the contribution needed to bring your adjusted net income below £100,000. That is the target. Check whether your employer offers salary sacrifice, which saves National Insurance on top of income tax. If not, a personal contribution to a relief at source pension or SIPP will achieve the same income tax outcome. Claim the additional relief via Self Assessment if you are a higher or additional rate taxpayer.
If you have children under 12 and are using Tax Free Childcare, check both parents' adjusted net income. Either parent earning above £100,000 removes eligibility for the household, so a contribution by the higher earner may preserve significant additional support.
Calculate your personal allowance and what it costs you
Enter your income and see your exact allowance, the cost of the taper, and the pension contribution needed to escape it.