Why More People Are Getting Caught in the 60% Tax Trap — and How to Avoid It

In recent years, an increasing number of UK taxpayers have found themselves facing an unexpected — and surprisingly steep — tax bill. The reason? The so-called “60% tax trap,” an effective marginal rate created when the personal allowance is tapered away for individuals earning over £100,000 a year.

With tax thresholds frozen and wages continuing to rise, more people than ever are drifting into this zone without realising it. Understanding how this hidden rate works — and what you can do about it — can save thousands of pounds each year.

What is the 60% tax trap?

For every £2 of income you earn above £100,000, you lose £1 of your personal allowance. Because you effectively pay tax both on the additional income and on the allowance that’s being withdrawn, the true marginal rate becomes 60%.

For example, if your income rises from £100,000 to £110,000, you lose £5,000 of personal allowance. Not only is the extra £10,000 taxed at 40%, the lost allowance is also taxed — pushing your effective rate to 60%.

Why is the trap expanding?

The personal allowance has been frozen for several years. As salaries increase due to inflation, more taxpayers naturally move into the tapering zone. Many only realise they’ve crossed the threshold when their tax bill arrives — sometimes with significant underpayments.

Who is most affected?

• Professionals with rising salaries or bonuses

• Small business owners balancing salary and dividends

• Company directors drawing irregular income

• Households where one partner’s income suddenly exceeds £100,000

Strategies to reduce or eliminate the impact

Fortunately, there are legitimate planning techniques that can help you stay out of the 60% zone or reduce your exposure:

1. Pension contributions. Personal or employer pension contributions reduce “adjusted net income,” which determines whether the taper applies. A well-timed contribution can restore lost personal allowance.

2. Gift Aid donations. Gift Aid donations also reduce adjusted net income. Charitable giving can therefore help mitigate the taper while giving to causes you care about.

3. Salary sacrifice arrangements. Redirecting income into pension, cycle-to-work, electric car schemes or other benefits can efficiently lower taxable income.

4. Income timing. If you run a business or receive bonuses, adjusting the timing of dividends or earnings may help you stay below the threshold in a particular tax year.

Final thoughts

The 60% tax trap is one of the UK’s least-understood tax pitfalls — but also one of the most avoidable. With the right planning, many clients can reclaim some or all of their lost allowance and significantly reduce their overall tax liability.

If you’d like to understand your exposure or explore planning opportunities, we can model your income and create a tailored strategy for the current and upcoming tax years.

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