The 60% tax trap

Getting out of it

A pension contribution reduces your adjusted net income, and the allowance is restored pound for pound as it falls back below £100,000. Inside this band that means roughly 62p of relief on every pound contributed — the highest rate of pension relief available anywhere in the UK system.

Salary sacrifice does the same job and also saves National Insurance, so it is usually the better route where an employer offers it. The take-home pay calculator shows all three methods side by side.

A Gift Aid donation works through the same arithmetic and is the route people forget. The charity reclaims basic rate relief on top of what you gave, and the grossed-up amount comes off your adjusted net income — so inside this band a donation costs you roughly the same 62p in the pound that a pension contribution does, with the difference that the money leaves for good. The box above takes it, so you can see what a donation you have already made has done to your rate.

One thing worth knowing in advance: the National Insurance exemption on salary-sacrificed pension contributions will be capped — but not until the 2029-30 tax year. For 2026-27there is no cap. What changes, and when.

If you have young children, it is worse than a rate

Everything above this point is about a rate: inside the band each extra pound is worth less than it looks. For a household with children in childcare, something different and sharper happens at £100,000 — which sits inside this same band. Childcare support is not tapered. It stops.

Above £100,000 of adjusted net income, one parent earning a pound too much ends both the funded hours and Tax-Free Childcare for the whole household. For a family with one child under three and one aged three to four, paying an £8 hour and routing £4,000 a year per child through Tax-Free Childcare, that is £13,680 of funded hours and £2,000 of top-up — £15,680 a year, gone on a single pound.

The consequence is not a higher rate but a lower total. That family is better off at £100,000 than at any salary up to about £136,750 — a stretch of roughly £36,750 in which a pay rise leaves them with less money than they had before it. The 60% on this page is the reason the climb back out is so slow: every pound of the recovery is taxed at it.

The way out is the same one, and it is the only reason this is escapable at all: a pension contribution or a Gift Aid donation reduces the adjusted net income the childcare test reads, exactly as it reduces the income the taper reads. One contribution answers both. The childcare cliff calculator works it for your own family, hours and rate.

The calculator above does not know about your children's childcare — it reports the marginal rate, and the cliff is not a rate. Treat the two as separate questions that happen to share a threshold.

Who actually gets caught by this

Almost nobody plans to be in this band. People arrive in it by accident, usually one of four ways: a pay rise that crosses £100,000, a bonus that pushes total pay over it for one year only, a company car or private medical cover added to an existing salary, or a second income — rental profit, dividends, freelance work — stacked on top of a job that was already close.

The last two catch people hardest, because the money is not in their bank account. A car worth £8,000 of taxable benefit does not feel like a pay rise, but the allowance taper treats it exactly like one. Adjusted net income counts it, and the allowance goes down accordingly.

It is not just the allowance

If you also claim Child Benefit, the High Income Child Benefit Charge is clawing it back across a separate income band, and the two effects stack. Somebody with children inside both bands at once faces a marginal rate well above the 62% shown here. The child benefit calculator works out that part, and a single pension contribution can address both at the same time — the allowance is restored and the charge falls, from the same pound.

Three mistakes worth avoiding

1. Assuming a bigger contribution is always better. The very high effective relief only applies to the pounds inside the band. Contributing past £100,000 of remaining income drops you back to ordinary higher-rate relief, which is still good but no longer exceptional.
2. Forgetting the annual allowance. There is a ceiling on how much can go into a pension with tax relief each year, and it is itself reduced for high earners by a separate two-condition taper. Check yours before contributing.
3. Using relief at source and never claiming. If contributions come out of already-taxed pay, only the basic rate is added automatically. Everything above that — which in this band is most of it — has to be claimed from HMRC. It is not automatic.

Why it exists at all

Nobody designed a 62% rate. It is a by-product: the allowance withdrawal was introduced as a way of removing the Personal Allowance from high earners without adding a new tax band, and the arithmetic of removing it gradually produces a spike that is higher than the top rate of tax sitting above it. The £100,000 threshold has not moved in over a decade, so each year more people earn their way into it without anything being announced.

What a thousand pounds of pension buys, by salary

The same contribution is worth wildly different amounts depending on where it lands. Inside the band it buys back the tax on itself twice over, because every pound contributed also restores fifty pence of allowance. Every row below was calculated at build time by the same engine as the box above.

Rest of the UK, salary sacrifice, no other income. The first and last rows are outside the band and are there to show what normal looks like.

What this does not do

• Check whether you can afford the contribution, or whether it fits inside your annual allowance. Above a certain income that allowance is itself tapered, and the pension relief page models it.
• Tell you whether salary sacrifice is available. It is your employer's arrangement, not your right, and the other two routes cost more because they do not touch National Insurance.
• Model the money you never see. Employer pension contributions, benefits your employer payrolls rather than reports, and anything deducted after tax are outside the figure the taper reads.
• Know anything about your childcare. The £100,000 limit described above is a cliff rather than a rate, so it cannot appear in the figure this calculator reports — it is a separate test on the same income.
• Speak to Scotland's own bands beyond selecting them. The taper is a UK-wide rule, but which rates sit under it is regional — the Scottish comparison is the page for that.

What people ask about the trap

Is there really a 60% tax rate?

Not in any published table, and yes in practice. Above £100,000 the Personal Allowance is withdrawn by 50p for every extra pound, so each pound is taxed and also exposes 50p that was not being taxed. The effect is the rate shown above, and it applies until the allowance reaches zero — after which the rate falls again.

How do I get out of the 60% band?

By reducing adjusted net income below the threshold, which in practice means a pension contribution, a salary sacrifice, or Gift Aid. Each pound put in that way costs you far less than a pound, because it buys back allowance as well as deferring tax. Nothing else moves the figure: the taper reads income, not effort.

Does a bonus get taxed at 60%?

It does if it is the money that carries you across the threshold. A bonus is not taxed differently from salary, but it often arrives as the top slice of the year, so it is the part that meets the taper. Sacrificing the bonus into a pension is the cleanest escape available, because it is a single decision about a single payment.

Does the taper apply in Scotland?

Yes. The Personal Allowance is set UK-wide, so it tapers away identically wherever you live. The effective rate is higher in Scotland, because the salary the withdrawn allowance exposes is taxed at Scottish rates — the taper is the same rule producing a worse number.