What Is the 60% Effective Tax Rate? (UK 2025/26)

The UK does not have a published 60% income tax band, yet hundreds of thousands of taxpayers pay exactly that rate on part of their earnings. This hidden rate applies to income between £100,000 and £125,140 for the 2025/26 tax year, and it arises entirely from the interaction between the 40% higher rate and the personal allowance taper.

How the 60% Rate Arises

For every £2 earned above £100,000, you lose £1 of your £12,570 personal allowance. That lost pound of allowance, which was previously tax-free, now becomes taxable at 40%. So for every extra £2 you earn, you pay 40% tax on the £2 (80p) plus 40% on the £1 of lost allowance (40p) — a total of £1.20 tax on £2 of income, equating to a 60% effective marginal rate.

When You Add National Insurance

The 60% rate reflects income tax only. If you are an employee, you also pay 2% National Insurance on earnings above the upper earnings limit (£50,270 for 2025/26), bringing the combined marginal rate to 62%. Self-employed individuals face different NIC calculations but experience a similarly elevated marginal rate.

Practical Strategies

The most effective way to reduce your exposure to the 60% band is to make pension contributions. Every pound contributed to a pension reduces your adjusted net income, potentially pulling you back below £100,000 and restoring your full personal allowance. At a 60% marginal rate, £1,000 of pension contributions effectively costs you only £400 in lost take-home pay.

Salary sacrifice is particularly efficient because it also saves National Insurance for both you and your employer.