The £100k Tax Trap: Britain's Hidden 60% Tax Rate That's Punishing Middle-Class Professionals

There's something deeply wrong with a tax system where earning an extra £2,000 can cost you over £27,000. Yet that's exactly what's happening to hundreds of thousands of British workers right now.

You won't find it listed anywhere in HMRC's official tax bands. There's no parliamentary debate about its existence. But hidden within the UK's tax code is an effective 60% tax rate that's quietly draining the income of nearly 2 million professionals—and that number is set to explode to 2.3 million by 2029.

Welcome to the £100k tax trap. If you're earning anywhere between £100,000 and £125,140, you're sitting right in the middle of it.

How Did We Get Here?

The story begins in April 2010. That's when the government introduced a seemingly innocuous rule: anyone earning over £100,000 would start losing their tax-free personal allowance. For every £2 earned above that threshold, you'd lose £1 of your allowance.

At the time, £100,000 was serious money—the preserve of senior executives, successful business owners, and top professionals. Fast forward 15 years, and something extraordinary has happened. That threshold hasn't moved. Not by a single pound.

Meanwhile, inflation has been busy. Wages have risen. Career progression has pushed more people up the salary ladder. And suddenly, the trap that was meant to catch "the very highest earners" is now snaring teachers with leadership responsibility, experienced NHS consultants, senior police officers, and mid-level accountants.

The Mathematics of Madness

Let me walk you through exactly how this works, because when most people first hear about it, they assume there must be some mistake.

Say you're earning £100,000 and you get a £10,000 pay rise. Good news, right?

Here's what actually happens:

And we haven't even mentioned National Insurance yet. Add in the 2% NI that employees pay on earnings above £50,270, and the real marginal rate becomes 62%. In Scotland, where the income tax rate at £100,000 is 45% rather than 40%, the effective rate soars to an eye-watering 69.5%.

The Numbers Don't Lie

The scale of this problem is staggering. According to HMRC data obtained through Freedom of Information requests, around 1.8 million people fell into this trap in 2024-25. That number is projected to hit 2.29 million by 2028-29—an increase of nearly half a million workers in just four years.

Break that down further: almost 725,000 workers will fall into the 60% tax trap in 2025-26 alone, up from about 300,000 in 2017-18. That's more than double in less than a decade.

And here's the really interesting bit. Recent payroll data from the employment platform Deel shows something remarkable: there's a sharp clustering of employees earning just below £100,000. People are actively trying to avoid crossing that threshold, even if it means turning down pay rises, reducing their hours, or finding creative ways to restructure their compensation.

The Parent Penalty: When Bad Becomes Catastrophic

If you're a parent with young children, the £100k threshold isn't just about tax. It's about something far more valuable: childcare.

Cross that line—even by a single pound—and you instantly lose:

Let's put some real numbers on this. Take a family with two young children where one parent earns £99,000. Now imagine they get a £2,000 bonus, taking them to £101,000.

AJ Bell calculated that in the worst case scenario—two children aged nine months and two years—a parent earning £99,000 who receives a £2,000 pay rise could see their disposable income drop by over £27,000. Their salary would need to reach £126,624 before they'd be financially back to where they were at £99,000.

The Cliff Edge Isn't Fair

Here's perhaps the most frustrating part: the £100,000 limit applies per parent, not per household.

A household with one person earning £105,000 and their partner earning £30,000—a combined income of £135,000—gets nothing. Meanwhile, a dual-income household earning £198,000 between them gets the full suite of support.

There's no means testing. No consideration of household circumstances. Just a binary, all-or-nothing cliff edge based on individual income.

Real Lives, Real Consequences

Brighton-based couple Matt and Siobhan Griffiths know this reality intimately. When their daughter Olive arrived in 2021, they discovered their combined income meant no government childcare assistance until she turned three. Matt estimated they'd face annual childcare costs of around £19,000.

The couple also run several Airbnb properties, generating between £80,000 and £100,000 in profitable years. Despite ranking among the nation's top 4% of earners, they told The Telegraph they don't consider themselves wealthy—not with a 67% marginal tax rate and no access to child benefit.

When their second child arrived, childcare costs doubled to nearly £40,000 annually. Then the 2022 mortgage rate surge hit, pushing their monthly repayments from £2,000 to £3,200. They were losing ground financially despite substantial earnings.

This isn't an isolated case. Financial advisers report seeing clients turning down promotions, negotiating four-day work weeks, and carefully timing bonuses to avoid crossing the threshold—even temporarily.

You Can Pay Tax on Tax-Free Income

Here's a wrinkle that catches people completely off guard: you can end up paying tax on income that's supposed to be tax-free.

Let's say you earn exactly £100,000 in salary. You also have £350 in savings interest (within your £500 personal savings allowance) and £250 in dividends (within your £500 dividend allowance). Both of these are tax-free, right?

This catches people out constantly. A small amount of rental income. Some modest investment returns. Even a one-off capital gain. Suddenly you're over the threshold and losing allowances you didn't even realise were at risk.

How to Escape the Trap

The good news—if you can call it that—is that there are legitimate ways to manage this. The question is whether you should have to engage in elaborate financial engineering just to avoid a punitive tax rate that shouldn't exist in the first place.

Pension Contributions: The Nuclear Option

This is the big one. Pension contributions reduce your "adjusted net income"—the figure HMRC uses to calculate whether you're over the £100k threshold.

Say you earn £110,000 and want to get back below the line. You'd need to contribute £10,000 to your pension. Here's why this works:

If you have young children, you'd also keep all your childcare benefits. For some families, a £10,000 pension contribution can save them £15,000-£20,000 in lost childcare alone, plus £3,000-£4,000 in reduced tax.

That's why financial planners consistently say that pension contributions are ludicrously tax-efficient for anyone in the £100k-£125k bracket. You're not just getting 40% tax relief—you're getting 60% (or 62% with NI).

Salary Sacrifice Schemes

Many employers offer salary sacrifice, where you give up part of your salary in exchange for non-cash benefits. Common options include:

These reduce your taxable income, potentially keeping you below £100,000. They also save both you and your employer National Insurance, which is why many companies are happy to offer them.

Charitable Donations

Donations made through Gift Aid can reduce your adjusted net income. If you donate £8,000, the charity can claim £2,000 through Gift Aid, making your total donation £10,000. That £10,000 reduces your taxable income.

As a higher-rate taxpayer, you can claim back an additional 20% through your tax return—similar to pension contributions.

Timing and Deferral

Sometimes the solution is simpler: spread income across tax years. If you're due a bonus that would push you over the threshold, ask your employer if it can be paid in instalments or deferred to the next tax year.

This is particularly relevant if you're close to the threshold anyway. A one-off bonus might cost you thousands in lost childcare for an entire term, but spreading it out could mean you stay eligible.

The Bigger Questions

All of this raises some uncomfortable questions about our tax system.

What Happens Next?

The government has frozen income tax thresholds until April 2031. That means even more people will be dragged into this trap through what's known as "fiscal drag"—where frozen thresholds and rising wages push people into higher tax brackets without any change in the rules.

HMRC's own estimates show the number of people earning over £90,000—within touching distance of the trap—will reach 541,000 by 2029, up from 334,000 in 2022. Many of these people will find themselves caught before they even realise the danger.

The Bottom Line

If you're earning anywhere close to £100,000, you need to be paying attention. This isn't just about tax efficiency—though that's important. It's about understanding a system that can punish career progression, penalise ambition, and create perverse incentives to earn less rather than more.

The £100k tax trap is a masterclass in how not to design a tax system. It's hidden, arbitrary, deeply unfair to specific groups, and creates mind-boggling effective tax rates that make a mockery of the official tax bands.

For those caught in it, the solution usually involves pensions, salary sacrifice, or careful income planning. But the fact that such elaborate workarounds are necessary says everything about how broken this part of the tax system has become.

The trap was meant to catch the very wealthy. Instead, it's catching the merely successful—and it's about to catch a lot more of them.