How to Avoid the 60% Tax Trap

What Is the 60% Tax Trap?

The 60% tax trap is one of the most punishing quirks of the UK tax system. It occurs when your income passes £100,000 and your personal allowance (£12,570) begins to be withdrawn. For every £2 earned above £100,000, you lose £1 of allowance.

This means that between £100,000 and £125,140, your effective marginal tax rate is 60%—and once you include National Insurance, it can rise to 62%. In Scotland, where rates are higher, the effective rate can even reach 67.5%.

Why It’s Becoming a Bigger Problem

  • Thresholds frozen: With the personal allowance and higher-rate thresholds frozen, more people are dragged into the trap each year.

  • Massively growing numbers: Over half a million earners are already affected, with projections showing millions could fall into it over the next few years.

  • Counter-intuitive outcomes: Someone earning £100,000 can often be better off than someone earning £110,000 after tax and lost allowances.

Legal Ways to Avoid or Reduce the 60% Trap

There are several strategies you can use to manage your income and reduce exposure:

1. Boost Pension Contributions

  • Contributing to a pension reduces your adjusted net income.

  • A well-timed contribution can bring your taxable income back under £100,000, restoring your personal allowance.

  • You can also carry forward unused allowances from the past three years to make larger contributions.

2. Make Charitable Donations

  • Gift Aid donations are grossed up, and the gross amount reduces your adjusted net income.

  • This is an effective way to keep taxable income below the £100k threshold while supporting causes you care about.

3. Use Salary Sacrifice

  • Redirect part of your salary into non-cash benefits such as pensions, extra annual leave, or cycle-to-work schemes.

  • This lowers taxable income while giving you something of value in return.

4. Claim Work-Related Expenses

  • Certain professions, like NHS doctors, can claim expenses such as professional subscriptions to reduce taxable income.

5. Manage the Timing of Income

  • If possible, defer bonuses or arrange for part of remuneration to be delivered in tax-efficient ways to avoid a spike over £100,000.

6. Use ISA Allowances

  • While ISAs don’t reduce taxable income, they shield investment growth and income from future tax, improving overall tax efficiency.

Example: Income at £110,000

  • Without planning: You lose £5,000 of allowance and pay around £6,000 in tax on the extra £10,000 of income.

  • With planning: A £10,000 gross pension contribution brings taxable income back to £100,000, preserves your allowance, and gives you a long-term retirement benefit.

This means a £10,000 contribution could cost you as little as £4,000–£5,000 in real terms after tax relief.

Summary of Strategies

Strategy Benefit
Pension contributions Preserve allowance, reduce taxable income
Carry-forward allowances Make large contributions to avoid the trap
Gift Aid donations Reduce adjusted net income via donations
Salary sacrifice Swap taxable pay for tax-free benefits
Expense claims Lower taxable income (where eligible)
Income timing Avoid temporary spikes above £100k
ISA savings Long-term tax-free growth

Final Thoughts

The 60% tax trap is one of the UK’s least understood tax pitfalls, and it is pulling more people in every year thanks to frozen thresholds.

The good news is that with the right planning—especially around pensions, charitable giving, and salary structuring—you can legally and effectively avoid paying such punishing rates.

If you’re close to the £100k mark, reviewing your tax position before year-end can make a big difference.