Earning Over £100K? Here are 5 Ways to Beat the 60% Tax Trap

Earning a six-figure salary is a great achievement, but in the UK, it comes with an unexpected downside – a hidden 60% tax trap. 

If your income falls between £100,000 and £125,140, you gradually lose your £12,570 personal allowance, effectively creating one of the highest marginal tax rates in the country. 

For every £2 you earn over £100,000, £1 of your personal allowance disappears, leading to a 60% effective tax rate – much higher than the usual 40% for higher earners. 

This means that for every extra £1,000 earned in this range, you might only take home £400, while the rest is lost to tax. The good news? With some smart tax planning, you can reduce your liability and avoid falling into this costly bracket. 

Below are five effective strategies to help you keep more of your hard-earned money.

1. Make Pension Contributions

Contributing to a pension scheme lowers your taxable income. If you make enough contributions to bring your net adjusted income below £100,000, you’ll regain your full personal allowance and receive tax relief at your highest marginal rate. This helps  boost your retirement savings and cut your tax bill.

2. Make Charitable Donations

Donating to a Gift Aid-registered charity also reduces your net adjusted income. If this brings you back below the £100,000 threshold, you restore your personal allowance and lower your tax bill. Additionally, Gift Aid extends your higher rate tax threshold, meaning more of your income is taxed at 20% instead of 40% or 60%.

3. Use Salary Sacrifice Schemes

Redirecting part of your salary into non-cash benefits – such as pension contributions or an electric company car scheme, reduces your taxable earnings. By lowering your income below £100,000, you can avoid the 60% tax trap while benefiting from other perks.

4. Share Income with Your Spouse

If your spouse earns less than you, shifting income to them can help you stay below the threshold. This can be done through:

• Dividends (if you own a business)
• Adjusting rental property profit ratios
• Adding your spouse to a family business payroll

This ensures you make the most of both partners’ tax allowances instead of pushing one person into the 60% bracket.

5. Invest in Tax-Efficient Schemes

Investing in ISAs (Individual Savings Accounts) ensures that any returns remain tax-free and do not push you into the 60% bracket. The £20,000 annual ISA allowance is a great way to build wealth without increasing your taxable income.

 

If you’re in this income bracket, it’s worth speaking to an accountant or tax adviser to ensure you’re making the most of these opportunities. 

Why pay more tax than you have to?