For most working people in the UK, the headline rate of 45% represents the ceiling of what HMRC can claim. But for those earning between £100,000 and £125,140, a quirk buried deep in the tax code pushes the effective rate to 60%, a figure that has caught many households off guard ahead of April’s tax year deadline.
The mechanics are deceptively straightforward. Every UK taxpayer is entitled to a personal allowance of £12,570, income on which no tax is owed. Above £100,000, however, that allowance begins to taper away at a rate of £1 for every £2 earned. According to Fidelity International, it is precisely this withdrawal that engineers the 60% trap, one that applies exclusively to the income band between £100,000 and £125,140.
How the Numbers Stack Up
The arithmetic behind the 60% figure is worth examining closely. According to St. James’s Place (SJP), for every £100 of income earned within that threshold, £40 is lost directly to income tax at the higher rate. A further £20 effectively disappears through the tapering of the personal allowance. On top of that, employee National Insurance contributions of 2% apply, meaning the combined burden exceeds even the headline 60%.
“It feels like a double jeopardy,” SJP noted, pointing out that once earnings reach £125,140, the personal allowance vanishes entirely, with no partial relief remaining. The term “double jeopardy” is apt: taxpayers in this band are penalized not only through higher direct taxation but through the simultaneous withdrawal of a benefit they would otherwise be entitled to.
The scale of the issue is significant. With fiscal drag having pulled more workers into higher tax bands over recent years, a consequence of frozen thresholds rather than rising salaries, the number of people exposed to this effective rate has grown considerably.
A Pension Contribution Could Be the Answer
For those approaching or already within the £100,000–£125,140 band, there is a well-established and legitimate route out. Pension contributions reduce taxable income, and according to Fidelity International, if those contributions are sufficient to bring earnings below the £100,000 threshold, the full personal allowance is effectively restored, and with it, the 60% rate disappears entirely.
SJP illustrated the principle with a clear example: a £1,000 bonus pushing income to £101,000 would ordinarily trigger the trap. Redirecting that same sum into a pension not only sidesteps the 60% zone but also attracts 40% tax relief on the contribution itself, turning a potential tax liability into a meaningful boost to retirement savings.
Fidelity reinforced the point, describing pension contributions as both a short-term tax management tool and a longer-term financial planning strategy. With the end of the 2025–26 tax year fast approaching, financial advisers are urging affected households to act before the April deadline closes the window on this tax year’s allowances.
