If you earn between £100,000 and £125,140, you're caught in one of the most punishing parts of the UK tax system. For every £2 you earn over £100k, you lose £1 of your personal allowance — creating an effective 60% marginal tax rate.
That's not a typo. Someone earning £110,000 pays a higher marginal rate than someone earning £200,000.
How the Trap Works
The standard personal allowance is £12,570. But once your income exceeds £100,000, it starts disappearing at a rate of £1 for every £2 earned. By £125,140, your personal allowance is completely gone.
The maths on a £5,000 pay rise from £100k to £105k
Income tax at 40%: £2,000
NI at 2%: £100
Lost personal allowance tax (£2,500 × 40%): £1,000
Total deductions: £3,100 out of £5,000 = 62% rate
5 Legal Ways to Avoid the Trap
1. Pension contributions
The most popular escape route. Contributing £5,000 to your pension when you earn £105,000 brings your adjusted net income back to £100,000, restoring your full personal allowance. The tax relief makes this incredibly efficient — a £5,000 contribution might only cost you £1,950 in real terms. Use our pension calculator to model this.
2. Salary sacrifice
If your employer offers salary sacrifice, this reduces your gross salary before tax. Sacrificing enough to stay at or below £100,000 saves you income tax, NI, AND preserves your personal allowance. See our salary sacrifice calculator.
3. Charitable donations via Gift Aid
Gift Aid donations extend your basic rate band and reduce your adjusted net income. A £5,000 Gift Aid donation reduces your adjusted income by £5,000.
4. Trading losses
If you have a side business that made a loss, you can offset it against your employment income, reducing your adjusted net income.
5. Time your bonuses
If you have flexibility, consider whether deferring a bonus to a year when your income is lower could save you money. This isn't always possible but is worth discussing with your employer.
Is It Worth Earning Over £100K?
Yes — you still keep 38p of every extra pound. It's just less than you'd expect. The trap only exists between £100k-£125k. Above £125,140, your marginal rate drops back to 47% (42% tax + 2% NI), which is actually lower than the 62% trap zone.
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