The 60% tax trap explained: Why a pay rise past £100,000 can leave you worse off

Got a pay rise or bonus recently and wondered why your take-home pay barely moved? If you're earning between £100,000 and £125,140, there's a reason – and it's not a mistake on your payslip.

It's called the 60% tax trap, and thanks to frozen tax thresholds, more people fall into it every year. This post explains exactly how it works, why it catches out women who are the main earner (or one of two earners) in a household more than people realise, and, more importantly, what you can actually do about it.

What the 60% tax trap actually is

Between £100,000 and £125,140, every extra pound you earn is effectively taxed at 60% (Unbiased, 2026). Your £12,570 personal allowance is withdrawn by £1 for every £2 earned above £100,000, gone entirely by £125,140. Add the 40% higher rate tax already due, plus 2% National Insurance above £50,270, and the marginal rate reaches 62% (Rathbones, 2025). £100 of extra salary in this band becomes £40 in your pocket, whether it comes from a bonus, a pay rise or a strong year of self-employed profit, since it is based on total adjusted net income, not basic salary alone.

The childcare cliff edge that makes it worse

For parents of young children, the real cost of crossing £100,000 is rarely the tax rate itself. It is losing Tax-Free Childcare, worth up to £2,000 a year per child, or £4,000 for a disabled child, and 30 hours of free childcare in England, worth up to £7,500 per child per year, the moment either parent's adjusted net income exceeds the threshold (Rathbones, 2025). This support disappears in one step, not gradually. Rathbones' analysis of an HMRC Freedom of Information request found a family with two children under five can lose close to £20,000 the year a parent earns just £1 over £100,000.

Why more people are falling into it every year

The £100,000 threshold has not moved since it was introduced in April 2010, while wages and inflation have moved a great deal (Rathbones, 2025). HMRC data obtained by Rathbones under Freedom of Information shows 1.8 million taxpayers earned above £100,000 in 2024-25, rising to a projected 2.29 million by 2028-29. The number losing some or all of their personal allowance has climbed 88% since 2021-22, from 1.22 million. This is fiscal drag: fixed thresholds and rising pay are quietly pulling more ordinary professionals into a band built, in 2010, to catch only the very highest earners.

What you can actually do about it

The most reliable way to reduce the impact is bringing adjusted net income back under £100,000, usually through pension contributions. Salary sacrifice reduces taxable salary directly, so someone earning £110,000 who sacrifices £10,000 into their pension can restore their full personal allowance, saving in the region of £6,000 in tax and lost benefits that year (Unbiased, 2026). Gift Aid donations work similarly, by extending the basic rate band. This route may not stay this generous: the 2025 Autumn Budget confirmed salary sacrifice will be capped at £2,000 a year from April 2029. None of this is a reason to avoid a pay rise, only to plan for one properly.

From Lucy, co-founder of Welleness

I remember the month my payslip stopped making sense. A small pay rise had gone in, and the number at the bottom barely moved. A proper conversation with someone who understood the mechanics explained I had walked straight into the £100,000 tax trap, with nobody warning me it existed.

What strikes me about this quirk of the tax system is how personal it feels once you are in it. It becomes a decision about whether to accept a promotion, ask your partner to take on more of the childcare, or quietly turn down extra hours because the maths does not work that year.

What I would say to any woman recognising herself here is that the tax trap rewards planning, not luck. A conversation with someone who sees your whole financial picture, not just the payslip, tends to save people more than they expect, and eases the anxiety of feeling caught out by your own success.

What you can do now

Work out your actual adjusted net income, not just basic salary, using HMRC's guidance or your payroll team, since bonuses, dividends and rental income all count towards the £100,000 threshold.

Ask whether your employer offers salary sacrifice, and what contribution would bring your income back under £100,000 before the £2,000 annual cap begins in April 2029.

If you have children under five, add together the tax taper and any lost childcare support before deciding how to respond to a bonus or pay rise this tax year.

Frequently asked questions

Does a bonus count towards the £100,000 threshold?

Yes, HMRC calculates adjusted net income across all taxable income, including bonuses, dividends and rental income (Unbiased, 2026).

Can my employer's pension contributions help me avoid the tax trap?

Not directly. Employer contributions do not count, but salary sacrifice does, since it reduces your contractual salary before tax (Unbiased, 2026).

Does the 60% tax trap reset every tax year?

Yes, your personal allowance is recalculated annually, so a lower income the next year restores it in full (Unbiased, 2026).

What happens to salary sacrifice pensions after 2029?

From April 2029, salary sacrifice pension contributions will be capped at £2,000 a year, following the 2025 Autumn Budget (Unbiased, 2026).

Here is what one Welleness member said after her first conversation with a financial adviser.

"Before using Welleness I thought speaking to a financial adviser was only for people who earn like 200 grand, or people who'd inherited. Without Welleness I would probably be less informed, and I wouldn't be reaching the levels of what I think I'm going to achieve now that I've spoken to Lizzie." Emily, Welleness user

If this has left you wondering whether you are quietly caught in the 60% tax trap, our free financial health check takes less than five minutes and gives you a clear picture across six areas of your financial life. No judgement, no jargon, just clarity.

This post is for informational purposes only and does not constitute financial advice. For guidance specific to your situation, speak to a regulated financial adviser.