The £100k Tax Trap Explained
The £100k tax trap is a feature of the UK tax system that can significantly increase the effective tax rate paid by higher earners.
Once your adjusted net income exceeds £100,000, your personal allowance begins to reduce. This means that for every £2 earned above £100,000, £1 of tax-free allowance is lost.
Because of this rule, income between £100,000 and £125,140 can face an effective marginal tax rate of around 60%.
Many people only discover this rule after receiving a pay rise, bonus or additional income. Understanding how the £100k tax trap works can help individuals better understand their tax position and explore legitimate financial planning options where appropriate.
In this article
Quick Summary
This may help you:
- Understand why income above £100k can face higher marginal tax rates
- Recognise how the personal allowance is gradually withdrawn
- Identify situations where the tax trap may affect take-home income
Before deciding, check:
- Your adjusted net income
- Whether bonuses or additional income affect your tax position
- How pension contributions may affect taxable income
Part of the Income Over £100k series
- 2026/27 High Earner Financial Checklist
- The £100k Tax Trap Explained
- Adjusted Net Income Explained (UK)
- How Bonuses Can Push Income Above £100k
What Is the £100k Tax Trap?
Most UK taxpayers receive a personal allowance, which is the amount of income that can be earned before income tax is applied.
For the 2026/27 tax year, this allowance is £12,570.
However, once adjusted net income exceeds £100,000, the personal allowance begins to reduce. The rule works as follows:
- The personal allowance reduces by £1 for every £2 of income above £100,000
- The allowance is fully removed once income reaches £125,140
Because income in this range is both taxed at the higher rate of 40% and causes the loss of tax-free allowance, the effective marginal tax rate on that portion of income can reach around 60%.
This situation is commonly referred to as the £100k tax trap.
For further explanation of how the personal allowance withdrawal works, MoneyHelper — the government-backed financial guidance service — provides a clear overview of UK income tax thresholds and allowances.
Why It Matters
For individuals whose income approaches or exceeds £100,000, the tax trap can affect how additional income translates into take-home pay.
Situations where it often appears include:
- Bonuses or commission payments
- Pay rises or promotions
- Dividend income
- Freelance or consulting income
- Rental income
Because the rule applies to adjusted net income rather than salary alone, it can affect individuals with several income sources.
Common Misunderstandings
“I will lose money if I earn over £100k” — This is not correct. Even though the marginal tax rate increases within this band, earning more income still increases total take-home pay. The key point is that the additional income is taxed more heavily.
“Only salary counts” — The rule applies to adjusted net income. This may include dividends, rental income, investment income and self-employment income.
“The allowance disappears instantly” — The personal allowance is gradually withdrawn between £100,000 and £125,140 rather than disappearing immediately.
When Financial Planning May Help
Some individuals review their financial planning when their income approaches or exceeds £100,000.
This may include situations such as:
- Receiving a large bonus or pay rise
- Deciding how much to contribute to pensions
- Managing multiple income sources
- Reviewing tax-efficient investment strategies
In these situations, some people choose to speak with a regulated financial adviser who can review their financial circumstances and explain how different options may affect their tax position.
Key Considerations
| Factor | Why It Matters |
|---|---|
| Adjusted net income | Determines when the personal allowance begins to reduce |
| Bonuses and additional income | May unexpectedly push income above £100k |
| Pension contributions | May affect adjusted net income in some situations |
| Multiple income sources | Dividends or rental income can also contribute |
Frequently Asked Questions
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Exploring Your Options
Financial planning decisions depend on individual circumstances. If you would like clarity on how the topics discussed may apply to your situation, TrustEvo can connect you with a regulated financial adviser.
This article is provided for general information only and does not constitute financial advice. Financial decisions depend on individual circumstances and regulated financial advice may be appropriate in some situations.