Question 1

What is the £100k personal allowance trap?

Accepted Answer

Once your income exceeds £100,000, you lose £1 of personal allowance for every £2 earned above £100k. Your personal allowance (£12,570) is completely lost at £125,140. This means every pound between £100k-£125,140 is effectively taxed at 60%.

Question 2

Why is the marginal tax rate 60% between £100k and £125k?

Accepted Answer

The 40% income tax rate applies to earnings in this range. On top of that, losing £1 of personal allowance for every £2 means each £2 earned attracts tax on £3. This works out to 40% x 1.5 = 60% effective marginal rate.

Question 3

How do I escape the 60% tax trap using a pension?

Accepted Answer

By making pension contributions that bring your adjusted net income to £100,000 or below, you restore your full personal allowance. For example, if you earn £110,000, a £10,000 pension contribution saves you the 60% marginal rate on that £10,000.

Question 4

Who is affected by the personal allowance trap?

Accepted Answer

Anyone with adjusted net income between £100,000 and £125,140 is in the trap. This includes salary, dividends, rental income, and other taxable income.

£100k Personal Allowance Trap Calculator 2025/26

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