The 60% Tax Trap

How high earners can stop losing so much to HMRC

If your income sits between £100,000 and £125,140, part of what you earn can be hit by an effective tax rate of 60%.

This guide explains how that happens – and the practical steps you can take to keep more of what you make.

Important: Figures and thresholds in this guide are based on current UK rules at the time of writing. Tax rules can change and their impact depends on your personal circumstances. This guide is general information, not personal advice.

1. Introduction

What is the 60% tax trap?

Most people think the top rate of Income Tax is 45%.
For some high earners, the real answer is nastier.

Between £100,000 and £125,140 of income, your Personal Allowance (£12,570 of tax-free income) is gradually taken away £1 for every £2 you earn above £100,000.

That means in this band you’re:

paying 40% higher-rate tax on the extra income and
losing a slice of tax-free allowance at the same time.

Combined, that creates an effective rate of 60% on part of your income.

A simple example

You receive a pay rise from £100,000 to £110,000:

Extra income: £10,000
40% Income Tax on £10,000 = £4,000
You lose £5,000 of Personal Allowance, which then gets taxed at 40% = £2,000
Total extra tax = £6,000

You keep £4,000 of the £10,000 rise.
That’s an effective tax rate of 60% on that slice of income.

Who is at risk?

You may be caught by the 60% band if:

Your salary or bonus pushes you above £100,000.
You’re a company director taking a mix of salary and dividends and your total income crosses the line.
You’re self-employed or a consultant with fluctuating income.
You have rental income or other side income on top of employment.

You might drift into the trap gradually – a pay rise here, a bonus there – without realising the marginal rate has quietly spiked.

Key ways to reduce the 60% hit

Personal pension contributions

Paying more into your pension can bring your adjusted net income back below £100,000.
This can: Reduce or remove the loss of your Personal Allowance. Attract tax relief at your highest marginal rate.
For someone in the taper band, the tax relief can be very powerful because you’re effectively saving at that 60% rate on part of the contribution.

Employer / company contributions

For company directors and business owners:

Your company can make employer pension contributions instead of paying all rewards as salary or dividends.
These may be deductible for Corporation Tax (subject to the “wholly and exclusively” rules) and don’t depend on your personal earnings in the same way as personal contributions.
Used well, this can be an efficient way to: Extract value from the company Avoid the 60% band Build long-term retirement wealth

Pension allowances and rules are complex and change regularly, so this area usually needs personalised advice.

Charitable giving (Gift Aid)

Donations to qualifying charities under Gift Aid:

Extend your basic rate band, and
Can reduce your adjusted net income for the Personal Allowance calculation.

For higher earners who already give regularly, structuring those gifts properly – and recording them correctly on a tax return – can help bring income back below £100,000 while supporting causes you care about.

Planning for the self-employed and landlords

For consultants, freelancers and landlords, reducing exposure to the 60% band can involve:

Careful timing of allowable business expenses and capital investment.
Making full use of the trading allowance or property allowance, where relevant.
Making pension contributions in good years to manage peaks in income.

The goal isn’t to manipulate income, but to be intentional about when and how income is recognised, so you’re not overpaying tax simply through poor planning.

Salary, bonus and dividend planning (for company directors)

If you own or control a limited company, you have extra levers:

Balancing salary vs dividends to avoid nudging into the taper band unnecessarily.
Considering bonus sacrifice into pensions where appropriate.
Smoothing income across tax years if there’s flexibility on when dividends or bonuses are taken.
Using spouse or partner shareholdings (where appropriate and compliant) so family income is spread more evenly across tax bands.

Family-level planning and Child Benefit

The 60% band isn’t the only nasty surprise in the system.

If one partner’s income exceeds £50,000, the High Income Child Benefit Charge can start to claw back Child Benefit – and by £60,000, the benefit is fully removed.

Taking income planning at household level can:

Reduce or avoid the Child Benefit charge.
Use both partners’ tax bands more effectively.
Limit exposure to both the Child Benefit clawback and the 60% band where possible.

This might include pension contributions, sharing investments, or restructuring how income is drawn from a family business.

Other planning opportunities

(with added caution)

Depending on your risk appetite and objectives, there are other tax-efficient structures that can sit alongside pensions, such as ISAs and – for appropriate investors – higher-risk routes like EIS, SEIS or VCTs.

These can offer attractive tax reliefs but carry additional risks, including loss of capital and illiquidity, so they’re not suitable for everyone and usually require regulated investment advice.

How we bring it all together

Tax + accounting at the core

We start with the numbers:

Your payslips, business accounts and tax returns
Your allowances, reliefs and elections
How income is split between employment, self-employment, dividends, property and investments

This means we’re not just talking about products – we’re redesigning the way your income flows through the tax system.

Integrated cash flow and scenario planning

We model questions like:

“What happens if my salary increase is taken partly as employer pension contributions instead?”
“If I bring my dividends forward or delay them, how does that change my effective tax rate?”
“If we treat our finances as a household rather than as individuals, how much tax do we actually save?”

You can see the long-term impact on your net income, retirement funding and financial independence timeline.

Coordinated wealth planning

Once the tax and structure are right, we then look at:

Pension and investment strategy
Risk, time horizon and goals (financial independence, semi-retirement, business exit, etc.)
Protecting your position with appropriate insurances and contingency planning

The end result is a joined-up plan that covers both today’s tax bill and tomorrow’s lifestyle.

Complimentary Consultation

Work with us

Tax rules and allowances can change, and their impact depends on your personal circumstances.

This guide is for general information only and is not personal tax, investment or financial advice.

Investments can go down as well as up, and you may not get back the full amount invested.

If you’re unsure about the right approach for you, you should seek personalised advice from a suitably qualified professional.

Ready to find out if you’re in the 60% tax trap?
We’ll review your current income, tax position and planning, and show you clear options to reduce unnecessary tax and accelerate your path to financial independence.