As part of our ongoing efforts to help you manage your finances more efficiently, we wanted to alert you to a lesser-known — but very costly — issue affecting many higher earners: the 60% tax trap.

What Is the 60% Tax Trap?

If your income is between £100,000 and £125,140, you could be paying an effective tax rate of 60% on part of your income.

Here’s why:

• Once your income exceeds £100,000, you begin to lose your personal allowance (£12,570 tax-free).
• For every £2 over £100,000, £1 of your personal allowance is removed.
• By the time you reach £125,140, you’ve lost it entirely.
• This means that income in that band is taxed at 40% plus the loss of tax-free allowance — giving an effective rate of 60%.

Why This Matters

If you’re in this income range, you could be paying thousands more in tax than necessary — often without realising it. Fortunately, there are ways to reduce your taxable income and avoid this trap.

What You Can Do

We can help you explore legitimate strategies to reduce your taxable income, such as:

• Pension contributions – which can lower your adjusted income.
• Gift Aid donations – which also reduce your effective income.
• Income timing or deferral – for bonuses or dividends where applicable.

These solutions can help you recover your full personal allowance and reduce your effective tax rate.

If your income falls within this band, we strongly recommend a review. Please let us know if you’d like to discuss options tailored to your situation — it could lead to significant savings.

Grant

Director and Independent Financial Adviser

This article is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

Levels and bases of, and reliefs from, taxation are subject to change and their value will depend upon personal circumstances. Taxation and pension legislation may change in the future.