24/08/2026
If your earnings hit £100,000, then that’s usually a cause for celebration. It means your hard work has paid off and you’ve received financial recognition.
You could also feel pleased that your income doesn’t yet come into the 45% additional-rate Income Tax band, which starts at £125,140 in the UK in 2026/27.
However, there is a lesser-known tax rule which could see you paying up to 60% Income Tax on earnings between £100,000 and the additional-rate threshold of £125,140, as your tax-free Personal Allowance begins to taper off.
Read on to find out more about this tax trap and how you could avoid it.
The tax-free Personal Allowance taper comes into force once your earnings reach £100,000
Tax rules can be complex. While you will have a marginal rate of Income Tax – basic, higher, or additional rate – which is applied to your earnings, you also need to factor in your Personal Allowance.
In 2026/27, this is £12,570, which means that you won’t usually pay any tax until your earnings exceed this threshold.
However, when you earn above £100,000 a year, your Personal Allowance begins to taper off and is reduced by £1 for every £2 you earn over this amount.
This means that you’re effectively paying your marginal higher rate of 40%, but are also losing 20% as your Personal Allowance goes down, equating to 60% in total.
For example, if you earn £101,000 then it would look like this:
£400 from your marginal rate
£200 lost from your Personal Allowance
£400 remaining as yours.
When your income reaches £125,140, your Personal Allowance disappears altogether and your whole income is liable for 45% additional-rate tax.
Another element to the 60% tax trap is one which can hit parents hard. As soon as your net income exceeds £100,000, you’ll lose your eligibility for up to 30 hours of free childcare a week and up to £2,000 tax-free childcare a year.
The tax trap is likely to begin widening its net soon, too. According to MoneyWeek, the number of Brits earning six-figure salaries is set to exceed 2 million for the first time in the 2026/27 tax year, pulling tens of thousands more workers into an effective 60% tax rate. This equates to about 6% of the UK’s workforce.
All of this can add up to a pay increase that actually ends up costing you money.
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
To be continued....
