The UK £100k Tax Trap: Allowance Taper Explained

How the taper works

Everyone gets a £12,570 personal allowance — the amount you earn before income tax starts. But once your adjusted net income passes £100,000, the allowance shrinks by £1 for every £2 you earn above it. At £125,140, it's gone entirely.

Losing allowance is worse than paying tax. When £1 of extra salary also destroys 50p of allowance, that 50p gets taxed at 40% too — adding 20p of tax to the 40p the £1 already cost. Total: 60p of tax per £1 earned. Between £100,000 and £125,140, the effective marginal rate is 60%: higher than the additional rate, hitting people who are merely comfortable rather than rich.

The thresholds are frozen until 2028, so every annual pay rise drags more people into the trap. Someone on £96,000 in 2023 is likely inside it by 2026 without ever changing jobs.

James's £110,000, line by line

James earns £110,000 — £10,000 into the taper zone:

1. Excess over £100,000: £10,000 2. Allowance lost: £10,000 ÷ 2 = £5,000 3. Remaining personal allowance: £12,570 − £5,000 = £7,570 4. Taxable income: £110,000 − £7,570 = £102,430 5. Tax: 20% on £37,700 = £7,540, plus 40% on £64,730 = £25,892 → £33,432 6. Employee NICs: 8% on (£50,270 − £12,570) = £3,016, plus 2% on (£110,000 − £50,270) = £1,194.60 → £4,210.60 7. Take-home: £110,000 − £33,432 − £4,210.60 = £72,357.40

Now compare James at £100,000 exactly: tax £27,432, NICs £4,010.60, take-home £68,557.40. The £10,000 rise netted him £3,800 — a 62% effective deduction on the promotion. That missing £6,200 is the trap working exactly as designed.

See where your own salary lands with the UK Take-Home Pay & Salary Calculator — the taper zone shows up clearly once you know to look for it.

The pension escape hatch

Here's the beautiful part: the taper is driven by adjusted net income, and pension contributions reduce it. A £10,000 gross pension contribution cuts your adjusted net income by £10,000 — restoring £5,000 of personal allowance and dodging the 60% rate on the contribution itself.

James sacrifices £10,000 into his pension via salary sacrifice:

• Adjusted net income: £110,000 − £10,000 = £100,000 — back at the taper threshold
• Personal allowance: fully restored to £12,570
• Tax saved: 40% on the £10,000 = £4,000, plus 40% on the restored £5,000 allowance = £2,000 → £6,000 of income tax saved
• Employee NICs saved: 2% × £10,000 = £200 (he's above £50,270, so the 2% rate)
• Employer NICs saved: 15% × £10,000 = £1,500 (often shared into the pension)

Total value of a £10,000 pension contribution in the taper zone: up to £17,700 — £10,000 in the pension plus £7,700 of tax and NICs that would otherwise have vanished. There is no better return available in the UK tax system. Nothing else comes close.

This is why accountants get almost emotional about the taper: it's the one place where pension contributions don't just save 40% but 60%. If you're anywhere between £100k and £125k and not maximising pension contributions, you're leaving the single biggest tax saving of your working life on the table.

Four more ways to beat the taper

Gift Aid and charity donations. Donations under Gift Aid reduce your adjusted net income pound for pound. £5,000 of charitable giving cuts £5,000 off the taper calculation — and the charity claims an extra 25% on top. Philanthropy with a 60% subsidy.

Salary sacrifice for other benefits. Electric cars, cycle-to-work, additional holiday purchase — anything via salary sacrifice reduces adjusted net income. An £8,000 EV sacrifice doesn't just save the car's tax; it restores £4,000 of personal allowance worth £1,600.

Timing bonuses. A £15,000 bonus landing in March when you're at £105,000 of salary pushes you deep into the taper. If your employer can defer it to April — a new tax year where your base is lower — the taper hit can halve. Ask before the bonus is declared, not after.

Know the cliff edges inside the trap. At £100,000 you also lose Tax-Free Childcare (worth up to £2,000 per child per year) and free childcare hours change. A parent at £100,001 loses childcare support worth thousands — the effective marginal rate at that exact pound can exceed 100%. Pension contributions that bring you back under £100,000 rescue the childcare too.

What if you've maxed the pension?

The annual allowance is £60,000 — most people in the taper zone can't sacrifice their whole salary. Once the pension is full, the next-best taper reducers:

Charitable giving via Gift Aid. Every £1 donated cuts adjusted net income by £1. A £5,000 donation restores £2,500 of personal allowance — worth £1,000 of tax — while the charity gets £6,250 after reclaiming basic-rate relief. If you were giving anyway, route it through Gift Aid and time it for taper years.

Timing income between tax years. Bonuses, dividends from your own company, freelance invoices — anything you can legitimately shift across 5 April. £10,000 of income moved from a £110,000 year to a £95,000 year saves the full 60% on the moved amount: £6,000 for the price of an invoice date.

ISAs won't help here. ISA contributions come from taxed income and don't reduce adjusted net income — they shelter future growth, which is valuable, but they do nothing for the taper. Do the pension first, then the ISA.

And remember the childcare cliff: if adjusted net income is £100,001, you lose Tax-Free Childcare worth up to £2,000 per child. A £1 pension contribution can be worth £2,001. Check the exact boundary every year — it's the highest-value pound in the entire tax system.

One final wrinkle: the taper uses adjusted net income, which adds back pension contributions made via relief at source but not via salary sacrifice or net pay. In practice all three reduce it — but if you make personal contributions and claim relief through Self Assessment, make sure your calculation adds them back correctly before applying the taper. Get it wrong and you'll either overpay or underpay, and HMRC charges interest on the difference either way.

The verdict

The taper is arguably the worst-designed stretch of UK tax: a 60% marginal rate aimed at senior teachers, GPs, and middle managers, created by accident when the allowance was introduced in 2010 and never fixed. It won't be fixed while thresholds stay frozen — which means the only winning move is the one HMRC hands you: pension contributions.

If your salary is between £100,000 and £125,140, the hierarchy is simple. First, sacrifice enough pension to get under £100,000 if you can — that restores the full allowance and rescues childcare entitlements. Second, sacrifice everything else you sensibly can while in the 60% zone. Third, only then think about ISAs and other wrappers. Every pound in the taper zone that doesn't go into a pension is taxed at 60%. Act accordingly.