Earning between £100,000 and £125,140 means you face an effective 60% marginal tax rate — one of the highest in the developed world for ordinary employment income. It happens because the personal allowance (£12,570 in 2026/27) is tapered away at £1 for every £2 earned above £100,000. You pay income tax twice on the same money: once on the income, and again on the allowance you lose.
The good news: it is entirely legal to avoid this trap. The strategies below — pension contributions, salary sacrifice, and Gift Aid — can bring your adjusted net income back to £100,000 and restore your full personal allowance. Done well, a £25,000 pension contribution in this band effectively costs you around £10,000 in real terms.
For the broader picture of what changes at £100,000, see What Happens If You Earn Over £100k.
Why the 60% Rate Exists
The UK tax system is designed so that the personal allowance (£12,570) is available to everyone with income below £100,000. Above that, for every £2 of additional income, £1 of personal allowance is removed.
| Income | Personal allowance remaining | Effective marginal rate |
|---|---|---|
| £100,000 | £12,570 | 40% |
| £105,000 | £10,070 | 60% |
| £110,000 | £7,570 | 60% |
| £115,000 | £5,070 | 60% |
| £120,000 | £2,570 | 60% |
| £125,140 | £0 | 60% (last £5,140) |
| £125,141+ | £0 | 45% |
Why 60%: On each extra £2 earned above £100,000:
- You pay 40% tax on the £2 of income = £0.80
- You lose £1 of personal allowance, which was shielding £1 from 40% tax — that costs another £0.40
- Total tax on that £2 = £1.20 = 60%
Above £125,140, you have no personal allowance left to lose, so the rate drops to 45% (the additional rate). This creates a bizarre situation where someone earning £126,000 keeps more of their marginal pound than someone earning £110,000.
What Counts as Income for This Calculation
The personal allowance taper is based on adjusted net income — not just your salary. This includes:
| Income type | Included? |
|---|---|
| Employment salary | Yes |
| Bonuses | Yes |
| Benefits in kind (company car, private medical, etc.) | Yes |
| Rental income (net of allowable expenses) | Yes |
| Dividends above the £500 allowance | Yes |
| Interest above the Personal Savings Allowance | Yes |
| Self-employment profits | Yes |
| Pension drawdown income | Yes |
| Salary sacrifice pension contributions | No — excluded before calculation |
| Personal pension contributions (gross) | Deducted from income |
| Gift Aid donations (gross) | Deducted from income |
This is the key insight: adjusted net income can be different from your headline salary, and you have meaningful tools to reduce it.
Strategy 1: Pension Contributions
How it works
Personal pension contributions reduce your adjusted net income pound for pound. If your adjusted net income before contributions is £120,000, a gross pension contribution of £20,000 brings it to £100,000 — restoring your full personal allowance.
The tax maths in this band are extraordinary:
| On a £20,000 pension contribution (income £120,000) | |
|---|---|
| Personal allowance restored (£20,000 ÷ 2) | £10,000 |
| Tax saved from restored allowance (£10,000 × 40%) | £4,000 |
| Basic 40% tax relief on the contribution | £8,000 |
| Total tax saving | £12,000 |
| Net cost of a £20,000 pension contribution | £8,000 |
You put £20,000 into your pension for a net cost of £8,000. That is a 60% effective rate of relief — exactly matching the tax rate you are escaping.
Worked example: income of £125,000
Without planning:
| Amount | |
|---|---|
| Gross income | £125,000 |
| Personal allowance | £0 (fully withdrawn) |
| Taxable income | £125,000 |
| Tax: 20% on £12,570–£50,270 | £7,540 |
| Tax: 40% on £50,270–£125,000 | £29,892 |
| National Insurance (2% above £50,270) | £1,495 |
| Total deductions | £38,927 |
| Take-home | £86,073 |
With £25,000 personal pension contribution:
| Amount | |
|---|---|
| Gross income | £125,000 |
| Less pension gross contribution | −£25,000 |
| Adjusted net income | £100,000 |
| Personal allowance restored | £12,570 |
| Taxable income | £87,430 |
| Tax: 20% on £12,570–£50,270 | £7,540 |
| Tax: 40% on £50,270–£100,000 | £19,892 |
| National Insurance (2% above £50,270) | £1,495 |
| Total deductions | £28,927 |
| Take-home (cash) | £96,073 |
| Pension receives | £25,000 |
| Total economic value | £121,073 |
The pension contribution costs £10,000 in reduced take-home but delivers £25,000 to your pension — a net gain of £15,000. The effective cost of the £25,000 contribution is just £10,000.
Annual allowance limits
You can contribute up to £60,000 gross per year (or 100% of your earnings if lower) into a pension in 2026/27. The £60,000 limit includes employer contributions.
If your adjusted income exceeds £260,000 (income including employer pension contributions), the tapered annual allowance reduces your limit. This is unlikely to apply unless you have significant employer contributions on top of a high salary. See our pension tapered annual allowance guide for the detail.
Carry forward unused allowances
If you have not used your full pension annual allowance in the previous three tax years, you can carry forward unused amounts. This means you can make a larger one-off contribution in a single year — potentially eliminating the 60% trap even if your usual salary would not allow it.
Unused allowances from 2023/24, 2024/25 and 2025/26 can be used in 2026/27. You must have been a member of a registered pension scheme in the years you are carrying forward from. See our pension carry forward guide.
Strategy 2: Salary Sacrifice
Salary sacrifice works differently from a personal pension contribution — and often better.
When you use salary sacrifice, your employer reduces your contractual salary by the sacrifice amount and pays the equivalent as an employer pension contribution. Because your salary is legally lower, the contribution:
- Never appears as income — it is excluded from your adjusted net income before the calculation
- Saves employee National Insurance at 2% (above £50,270)
- Saves employer National Insurance at 13.8% — some employers pass this saving back
| Salary sacrifice vs personal contribution on £25,000 (income £125,000) |
|---|
| Salary sacrifice | Personal contribution | |
|---|---|---|
| Adjusted net income reduced by | £25,000 | £25,000 |
| Employee NI saving (2%) | £500 | None |
| Employer NI saving (13.8%) | £3,450 (if passed on) | None |
| Pension receives | £25,000 | £25,000 |
| Additional benefit if employer passes NI | +£3,450 | — |
If your employer adds their National Insurance saving to your pension (increasingly common under modern schemes), salary sacrifice is significantly more valuable than a personal contribution for the same sacrifice amount.
Note: Salary sacrifice reduces your pensionable pay for the purposes of any defined benefit or final salary scheme. Check this before committing. It can also slightly affect mortgage affordability calculations based on contractual salary.
Strategy 3: Gift Aid Donations
Charitable donations with Gift Aid also reduce your adjusted net income — and serve double duty by supporting causes you care about.
How Gift Aid reduces adjusted net income
When you make a Gift Aid donation, HMRC grosses it up by 25% (the basic rate reclaimed by the charity). The grossed-up amount is what reduces your adjusted net income.
| Donation you make | Gross Gift Aid amount | Adjusted net income reduction | Personal allowance restored |
|---|---|---|---|
| £5,000 | £6,250 | £6,250 | £3,125 |
| £10,000 | £12,500 | £12,500 | £6,250 |
| £20,000 | £25,000 | £25,000 | £12,500 |
Additional tax relief you can claim
As a higher or additional rate taxpayer, you can also reclaim the difference between your marginal rate and basic rate on the gross donation:
| Marginal rate | Basic rate | Reclaimable per £100 gross donation |
|---|---|---|
| 40% | 20% | £20 |
| 45% | 20% | £25 |
| 60% effective | 20% | £40 (because the allowance restoration adds extra relief) |
This is claimed through your Self Assessment return. The donation does not need to be to a UK charity — international charities registered with HMRC also qualify.
Strategy 4: Combine All Three
The most powerful approach combines pension contributions, salary sacrifice and Gift Aid to target an adjusted net income of exactly £100,000.
Scenario: Software director earning £118,000 salary, no other income. Has spare income of £25,000 and wants to maximise tax efficiency.
| Action | Gross income reduction |
|---|---|
| Salary sacrifice £10,000 into pension | −£10,000 |
| Personal pension contribution £5,000 (net), gross £6,250 | −£6,250 |
| Gift Aid donations £1,500 (net), gross £1,875 | −£1,875 |
| Total adjusted net income reduction | −£18,125 |
| Adjusted net income | £99,875 |
| Personal allowance | Full £12,570 |
All three strategies together bring adjusted net income just below £100,000, restoring the full personal allowance and eliminating the 60% trap.
The Self Assessment Requirement
Everyone with income above £100,000 must file a Self Assessment tax return — even if they are fully employed and pay tax via PAYE.
| Requirement | Detail |
|---|---|
| Register by | 5 October after the tax year |
| File online by | 31 January following the tax year |
| Why even PAYE employees must file | HMRC cannot automatically calculate personal allowance taper via PAYE |
| Late filing penalty | £100 immediately, more after 3 and 6 months |
Your Self Assessment return is also where you:
- Claim higher-rate relief on personal pension contributions (if not done via net pay arrangement)
- Claim higher-rate relief on Gift Aid donations
- Disclose and pay any High Income Child Benefit Charge
The High Income Child Benefit Charge Interaction
If you or your partner receives Child Benefit and either of you earns over £60,000, a separate charge applies — the High Income Child Benefit Charge (HICBC). This is in addition to the personal allowance taper, not instead of it.
| Individual income | HICBC charge |
|---|---|
| Below £60,000 | None |
| £60,000–£80,000 | 1% of Child Benefit per £200 of income |
| £80,000+ | 100% clawback |
Crucially, the HICBC threshold is your individual income — not household income. A couple where one partner earns £78,000 and the other earns £62,000 both face partial clawbacks separately.
Pension contributions reduce your income for HICBC purposes too — the same adjusted net income calculation applies. See our High Income Child Benefit Charge guide and how to avoid HICBC.
What Not to Do
A few common mistakes:
- Don’t panic-spend to get below £100k. Spending money is not a tax strategy — it just leaves you poorer. Pension contributions and Gift Aid preserve or grow your wealth while reducing tax.
- Don’t rely on PAYE to sort itself out. HMRC’s PAYE system cannot always calculate the personal allowance taper accurately, especially with variable income or multiple sources. Always file a Self Assessment return and check your tax position annually.
- Don’t forget bonuses and share vesting. A bonus paid in March can push you over £100,000 unexpectedly. If you know a large payment is coming, front-load pension contributions earlier in the year.
- Don’t confuse salary sacrifice and personal contributions. They both reduce adjusted net income, but salary sacrifice never enters your income at all — which can be slightly more efficient.
Planning Checklist for £100k–£125,140 Earners
- Calculate your likely adjusted net income for 2026/27 (salary + all other income)
- Identify how far above £100,000 you are
- Check available pension annual allowance (including carry forward from previous 3 years)
- Set up or increase salary sacrifice if your employer offers it
- Make additional personal pension contributions if needed to reach £100,000
- Consider Gift Aid donations if you give to charity anyway
- Register for and file a Self Assessment return by the deadlines
- Claim higher-rate relief on pension and Gift Aid contributions on your return
Related Guides
- Income Tax UK: Tax Codes, Allowances, PAYE, Scottish Rates and Reliefs
- What Happens If You Earn Over £100k — full overview of changes at £100k
- Salary Sacrifice Guide — how salary sacrifice works in detail
- Pension Tax Relief Guide — how pension relief is calculated
- Pension Carry Forward Rule — using previous years’ unused allowances
- Gift Aid Guide UK — how Gift Aid works for higher-rate taxpayers
- High Income Child Benefit Charge Guide — the HICBC interaction
- How to Avoid the High Income Child Benefit Charge — strategies
- Take-Home Pay on £100,000 — what £100k actually leaves in your pocket
- Pension Tapered Annual Allowance — if income exceeds £260,000