How can I avoid the 60% tax trap?

April 21, 2026

For those with income between £100,000 and £125,140, the UK tax system contains an unwelcome surprise: an effective 60% income tax rate. It’s not an official tax band, and it catches people off-guard because it only applies within a specific income range. 

The good news is that there are several legitimate ways to reduce or avoid it — but you need to understand how the trap works first.

What is the 60% tax trap?

The 60% tax rate isn’t a formal tax band. Instead, it’s the result of two things happening at once:

1. You pay 40% higher-rate tax, and
2. You begin to lose your Personal Allowance once your income exceeds £100,000. For every £2 you earn above £100,000, your Personal Allowance (currently £12,570) is reduced by £1. This continues until your income reaches £125,140, at which point your Personal Allowance is reduced to zero.

This creates a hidden marginal tax rate of 60%. (In Scotland, where tax bands differ, the rate can be even higher.)

Why does this create an effective 60% tax rate?

Between £100,000 and £125,140, you are:

• Paying 40% income tax, and
• Losing £1 of tax-free allowance for every £2 earned — effectively paying an extra 20% on that lost allowance.

So for every £1 you earn in this range, you only keep 40p.

My salary is nearly £100,000. Am I likely to fall into the 60% tax trap?

To understand whether you are at risk of the effective 60% tax rate, it’s important to look at your full financial picture, not just your salary. 

Even if your salary is below £100,000, you may still fall into the 60% tax trap if other sources of income push the total into the £100,000 and £125,140 range. For example:

• You receive a bonus 
• You have benefits-in-kind (e.g., a company car or private medical insurance)
• You have additional income from investments or a rental property, for example

How to avoid the 60% tax rate legally

There are several legitimate strategies to reduce your taxable income and avoid the 60% band. The most appropriate approach depends on your circumstances, so it’s important to get advice from an Independent Financial Adviser (IFA) who understands your full financial picture.

Your IFA will look with you at the different strategies available to you, explain the options, and recommend the actions which will give you the most benefits – not only in terms of minimising your tax bill now, but also in terms of maximising the long-term strategies for making your money work harder for you, rather than the taxman.

1. Make pension contributions

This is one of the most powerful and widely used methods of minimising tax burdens for higher earners.

Pension contributions reduce your taxable income, (the figure used to calculate whether you lose your Personal Allowance) potentially bringing it back below the £100,000 threshold.

For example: If you earn £110,000 and contribute £10,000 into your pension, your adjusted net income falls back to £100,000 — restoring your full Personal Allowance and avoiding the 60% band entirely.

You also receive tax relief at your highest marginal rate, making this extremely efficient, and a double win, as you reduce today’s tax bill whilst boosting your retirement savings.

2. Use salary sacrifice

Salary sacrifice allows you to exchange part of your salary for pension contributions or other approved benefits. This reduces your taxable income before it is assessed for the Personal Allowance taper.

Benefits include:

• Lower income tax
• Lower National Insurance (NI)

Your employer may also save on their NI contributions, making it a mutually beneficial option. 

3. Make charitable donations (Gift Aid)

Charitable giving through Gift Aid donations also reduced your taxable income.

If you donate £1,000 to charity, the gross value is £1,250 — and this reduces your income for Personal Allowance purposes.

This can help you:

• Avoid the 60% band
• Restore some or all of your Personal Allowance
• Claim higher-rate tax relief on the donation

4. Transfer income-producing assets to a spouse

If your partner pays a lower rate of tax, transferring certain assets (such as savings or investments) to them can reduce your taxable income and help you stay below the £100,000 threshold.

This must be done correctly to comply with HMRC rules, so the advice of an IFA is crucial, but it can be very effective.

5. Review timing of your income

If you have control over when income is taken — for example, as a company director — you may be able to:

• Delay income into the next tax year
• Bring income forward
• Smooth income across years

This can help you avoid crossing the £100,000 threshold unnecessarily. Again, it’s important to consult an IFA who can help you to understand your full financial picture before making decisions, to avoid making potentially expensive errors.

Why planning matters

The 60% tax trap is one of the most punitive parts of the UK tax system, but it’s also one of the easiest to avoid with the right planning. Even small adjustments — such as increasing pension contributions or making a Gift Aid donation — can save thousands of pounds in tax and restore your Personal Allowance.

How Talis IFA can help

When it comes to avoiding the 60% tax trap, the most appropriate approach depends on your individual circumstances. Pension contributions are subject to annual allowances. Salary sacrifice arrangements must be structured correctly to meet HMRC rules. And charitable giving must be made under the Gift Aid scheme.

This is where the advice of an IFA makes all the difference. Your Talis IFA can look with you at different scenarios, weigh up the tax savings against your long-term objectives, and ensure that your decisions are effective and compliant.

With the right advice, you can make crossing the six-figure mark a cause for celebration rather than frustration, avoid the 60% tax trap, keep more of what you earn, and make your money work harder towards your future financial freedom.

Find a Talis IFA here.

This article does not constitute tax or legal advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice.