Does Earning Over £100,000 Mean a 60% Tax Rate? The 2026/27 £100k Tax Trap

11 minutes ago

4 min read

“My salary increased from £100,000 to £110,000. Why did my take-home pay rise by much less than £10,000?” This question commonly arises in tax planning for higher-paid employees and company directors.

The important point is that the UK does not have a separate statutory 60% Income Tax band applying to everyone. The expression “60% tax trap” describes the interaction between higher-rate Income Tax and the gradual withdrawal of the Personal Allowance over a particular income range. Together they can produce an effective 60% marginal Income Tax rate. For an employee who also pays ordinary National Insurance on that slice of earnings, the combined marginal burden may be approximately 62%.[1][2]

This mechanism has existed for years. It was not a new 60% tax introduced in October 2026.

1. Why does the Personal Allowance fall above £100,000?

The standard UK Personal Allowance for 2026/27 is £12,570. When an individual's adjusted net income exceeds £100,000, the allowance is reduced by £1 for every £2 above £100,000. At adjusted net income of £125,140 or more, the standard Personal Allowance is reduced to nil.[1]

The simplified formula is:

Remaining standard Personal Allowance = £12,570 − (adjusted net income − £100,000) ÷ 2 The formula applies between £100,000 and £125,140, cannot reduce the allowance below zero and does not cover every possible separate allowance.

Assumed adjusted net income：£100,000；Reduction in allowance：£0；Remaining standard Personal Allowance：£12,570
Assumed adjusted net income：£110,000；Reduction in allowance：£5,000；Remaining standard Personal Allowance：£7,570
Assumed adjusted net income：£120,000；Reduction in allowance：£10,000；Remaining standard Personal Allowance：£2,570
Assumed adjusted net income：£125,140；Reduction in allowance：£12,570；Remaining standard Personal Allowance：£0

2. Where does the 60% figure come from?

Consider a simplified 2026/27 example for someone in England, Wales or Northern Ireland whose additional income is subject to the 40% higher rate and who has no other complex reliefs.[1]

Assume adjusted net income was £100,000 and then increases by £1,000 of taxable salary, with no additional pension contribution or other adjustment:

The additional £1,000 is taxed at 40%, producing approximately £400 of Income Tax.
Because income is above £100,000, the Personal Allowance falls by £500. That exposes another £500 of income to tax at 40%, producing approximately £200 more Income Tax.
Total additional Income Tax is therefore approximately £600, or 60% of the extra £1,000.

This is the commonly described 60% marginal Income Tax rate. It does not mean the taxpayer's entire annual income is taxed at 60%. It describes the effective tax on additional income within the relevant range under the assumptions above.[1]

For a typical employee below State Pension age paying Class 1 National Insurance in category A, employee NI is generally 2% on earnings above the upper earnings limit, normally £50,270 a year in 2026/27. In the simplified example, tax and employee NI on the extra £1,000 could therefore total about £620, leaving around £380 of additional take-home pay—a combined marginal burden of approximately 62%.[2]

Important limitation: National Insurance is calculated by pay period and category. The 62% illustration cannot automatically be applied to self-employed people, pension recipients, employees in a different NI category or anyone with special circumstances.

3. Why is it wrong to say everyone above £100,000 pays 62%?

There are at least three reasons.

Residence matters. Scotland has different Income Tax bands for employment and other non-savings, non-dividend income. The 40%-plus-allowance-withdrawal illustration above should not be copied directly for a Scottish taxpayer.[3]

Adjusted net income matters, not merely contractual salary. HMRC's calculation takes account of relevant taxable income and applicable adjustments, which may include qualifying pension contributions and Gift Aid donations.[4]

A marginal rate is not an average rate. Even if part of the next pound of income suffers an effective 60% Income Tax charge, that does not mean 60% of the whole £110,000 is paid as Income Tax.

4. How can someone check whether the £100k tax trap applies?

Before making any arrangement, estimate the individual's actual and forecast adjusted net income for the whole tax year. Relevant items may include salary, bonuses, property income, dividends and savings interest, followed by any permitted pension or Gift Aid adjustments.[4]

Depending on the legal and personal circumstances, some people consider qualifying pension contributions, employer arrangements or Gift Aid when managing adjusted net income. This does not mean that making an extra pension contribution always recovers a full 60% benefit. Pension tax relief depends on earnings, the pension arrangement, annual allowance and other rules. Salary sacrifice also has employment-law and tax conditions and should be modelled before action is taken.

Company directors who receive a mixture of salary, dividends and other income should not decide whether they exceed £100,000 merely by looking at base salary on a payslip.[4]

Frequently Asked Questions

Q: Is all income above £100,000 taxed at 60%?

No. The 60% figure describes a possible marginal Income Tax burden on additional income within the £100,000 to £125,140 range under the stated assumptions. It is not a statutory rate applied to all income.[1]

Q: Does the £100,000 threshold mean gross salary or take-home pay?

The test uses adjusted net income. It cannot be equated simply with take-home pay or even contractual salary where other income and adjustments are present.[4]

Q: Did the UK introduce a new 60% tax rate in 2026?

No. Withdrawal of the Personal Allowance is not a new October 2026 tax band. The 60% description explains the marginal effect of existing rules.[1]

The easily overlooked feature of the £100k tax trap is the impact of the Personal Allowance taper on bonuses, salary increases and other income. Anyone expecting adjusted net income near or above £100,000 should model the full year using the appropriate regional tax bands, income sources, pension position and other relevant factors.

This article contains general information for 2026/27. The examples use the standard Personal Allowance and relevant employment-income rates for England, Wales and Northern Ireland. They are simplified and do not calculate any individual's liability.

Contact TB Accountants

TB Accountants can help you review UK personal tax, Self Assessment and Making Tax Digital requirements based on your income sources and circumstances.