← All insights

Between £100,000 and £125,140 of income sits one of the least understood features of the UK tax system: an effective marginal rate of around 60%.

In short
  • The personal allowance reduces by £1 for every £2 of income above £100,000.
  • This creates an effective marginal rate of roughly 60% in that band.
  • Pension contributions and salary sacrifice are the usual planning tools.
  • Families can also lose child benefit in the same range.

Why is the marginal tax rate 60% between £100,000 and £125,140?

Above £100,000, your personal allowance is withdrawn by £1 for every £2 earned. You pay 40% on the income itself, and you also lose tax-free allowance along the way. The combined effect is an effective rate of about 60% until the allowance is gone at £125,140.

A bonus that pushes you into this band can be worth far less than it appears.

How do pension contributions reduce the £100k tax trap?

A personal pension contribution reduces your adjusted net income. Contribute enough to bring income back to £100,000 and the personal allowance is restored — meaning tax relief at an effective rate of around 60% on that slice.

Few other allowances in the system are as efficient.

What else reduces adjusted net income above £100,000?

  • Salary sacrifice — reduces income before it is assessed, and can save National Insurance too.
  • Charitable giving under Gift Aid also reduces adjusted net income.
  • Timing — where a bonus is discretionary, which tax year it falls in can matter.
  • Spousal planning — making full use of both sets of allowances across a household.

How does the High Income Child Benefit Charge make it worse?

Families in this income range can also face the High Income Child Benefit Charge, which compounds the effect. For a household with children, the true marginal rate can be higher still.

What limits apply to pension contributions?

Pension contributions are capped by the annual allowance — £60,000 for 2026/27, reduced for very high earners — though unused allowance from the previous three years can sometimes be carried forward.

Source: the personal allowance taper and the income tax bands quoted are from GOV.UK, Income Tax rates and Personal Allowances.

This article is general information, not personal advice. Tax treatment depends on individual circumstances and may change in future. The Financial Conduct Authority does not regulate tax planning. The information contained within this article was accurate at the date of publication and is subject to change. Reviewed by Bright Wealth before publication.