How the £100k Tax Trap Really Works (And How to Avoid It)

What Is the £100k Tax Trap?

If your adjusted net income exceeds £100,000, you start losing your £12,570 Personal Allowance. For every £2 you earn above £100k, you lose £1 of your tax-free allowance. This creates a 60% effective marginal tax rate in the £100k–£125,140 band — higher than the 45% additional rate.

This is one of the most misunderstood features of the UK tax system, and it catches thousands of higher earners off guard every year.

How the Maths Works

• At £100,000 income: full £12,570 Personal Allowance
• At £112,570 income: half your allowance gone (£6,285 remaining)
• At £125,140 income: zero Personal Allowance

In that £25,140 band, you effectively pay:

• 40% income tax on the income itself
• Plus 40% tax on the allowance you lose (since every £2 earned removes £1 of tax-free income)
• Equals a 60% marginal rate

Add National Insurance (2%) and you're looking at a 62% effective rate.

How to Avoid the Trap

Salary Sacrifice Into Your Pension

The most effective strategy is to sacrifice salary above £100k directly into your pension. This:

• Reduces your adjusted net income below the £100k threshold
• Preserves your full Personal Allowance
• Saves employer and employee National Insurance
• Grows tax-free inside your pension

Gift Aid Donations

Charitable donations through Gift Aid also reduce your adjusted net income. If you're just above £100k, even modest donations can pull you back under the threshold.

Timing Your Income

If you have control over bonuses or dividends, consider timing them to avoid clustering income in a single tax year.

Use TaxPilot to Model Your Exact Position

Every situation is different. Use the TaxPilot calculator to enter your exact salary, bonuses, and benefits — and see precisely how much you could save by optimising around the £100k trap.

The difference between planning around the trap and ignoring it can be worth £5,000+ per year in take-home pay.