Question 1

What is the 60% tax trap?

Accepted Answer

The 60% tax trap affects UK earners between £100,000 and £125,140. For every £2 earned above £100,000, you lose £1 of your £12,570 personal allowance. This creates an effective marginal tax rate of 60% — 40% income tax plus the equivalent of 20% from the lost personal allowance.

Question 2

How can I avoid the 60% tax trap?

Accepted Answer

The most effective strategies are: (1) Pension contributions via salary sacrifice to bring taxable income below £100,000, (2) Charitable donations through Gift Aid which extend your basic rate band, (3) Employer pension contributions which do not count as taxable income. Salary sacrifice is the most popular method as it saves both income tax and National Insurance.

Question 3

What income triggers the personal allowance taper?

Accepted Answer

Your adjusted net income above £100,000 triggers the taper. Adjusted net income is your total taxable income minus pension contributions (gross), Gift Aid donations (grossed up), and trading losses. The personal allowance of £12,570 is fully lost at £125,140.

Question 4

How much pension contribution do I need to escape the 60% trap?

Accepted Answer

You need enough pension contributions to bring your adjusted net income to £100,000 or below. For example, if you earn £120,000, you would need £20,000 in pension contributions (gross). With salary sacrifice, you save an additional 2-8% in National Insurance on top of the 60% effective tax relief.