Avoiding the 60% tax trap: where financial planning makes a real difference

The 60% tax trap has become one of the most significant - and least understood - financial hurdles for UK earners. While the headline higher‑rate tax band suggests a 40% rate, the reality is far more punishing.

If your income is close to or above £100,000, you may be affected by the “60% tax trap.” This happens because your personal allowance is gradually taken away once your income passes £100,000.  For every £2 earned above that threshold, £1 of allowance is lost.

The effect is a marginal tax rate of 60% on part of your earnings between £100,000 and £125,140. This is much higher than most people expect and an unexpectedly steep penalty for many professionals, business owners, and senior employees.

 

This creates a unique challenge: individuals can find themselves working harder for significantly less reward, with bonuses, pay rises, or additional income eroded far more quickly than expected. It can also distort financial decisions, leading people to delay career progression or decline opportunities simply to avoid falling into this band.

The good news is that there are legitimate and effective strategies to reduce or eliminate exposure to the 60% band. These include:

If your income is £110,000 and you make a gross contribution of £10,000 to a pension, your adjusted income falls back to £100,000. You reclaim your full personal allowance and receive tax relief on the contribution.

• Pension contributions — Making personal or employer‑facilitated pension contributions can reduce taxable income, restore lost personal allowance, and boost long‑term retirement savings.
• Salary sacrifice arrangements — Redirecting income into pensions, electric vehicles, or other approved benefits can lower adjusted net income while improving overall financial efficiency.
• Tax‑efficient investment structures — Products such as ISAs or certain employee share schemes can help manage taxable income and long‑term planning.
• Charitable giving — Gift Aid donations can extend the basic-rate band and reduce the income used to calculate personal allowance withdrawal.

Each option carries its own considerations, and the right combination depends on personal circumstances, goals, and existing financial arrangements.

For anyone approaching or already within the £100,000 – £125,000 range, tailored advice can make a substantial difference. A financial adviser can help you understand your position, explore the most suitable strategies, and ensure your income works as efficiently as possible. If you’d like to explore how to reduce your exposure to the 60% tax trap, contact your financial adviser now.

 

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.

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James Weir Financial Services LLP is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.