Earning £100,000: Navigating the 2025/2026 'Tax Trap'

The High Earner's Milestone and the Personal Allowance Taper

Reaching a six-figure salary of £100,000 is a prestigious achievement for many UK professionals. However, it also marks the exact entry point into one of the most punitive zones of the UK tax system. For the 2025/2026 tax year, once your "Adjusted Net Income" exceeds £100,000, your tax-free Personal Allowance (£12,570) is reduced by £1 for every £2 earned above this limit. This means that by the time you reach £125,140, your Personal Allowance is completely gone.

The 60% Effective Tax Rate Explained

The interaction between the 40% Higher Rate tax and the loss of your Personal Allowance creates what is commonly known as the "60% Tax Trap." For every £100 you earn between £100,000 and £125,140, you pay £40 in income tax, and you also lose £50 of your tax-free allowance, which results in an additional £20 tax charge. This effective 60% rate is higher than the top 45% rate paid by those earning over £125,140, making proactive financial planning essential for those in this bracket.

Strategic Budgeting: Pension Contributions are Key

To mitigate the impact of the 60% tax trap, many earners at this level opt to increase their pension contributions via salary sacrifice. By lowering your 'Adjusted Net Income' back down to £100,000, you effectively receive 60% tax relief on those contributions, which is one of the most efficient ways to build wealth in the UK. This strategy not only secures your future but also preserves your current net pay by keeping your full Personal Allowance intact.

Lifestyle and Take-Home Realities

With a £100,000 gross salary, your monthly net pay (using standard Code 1257L and considering National Insurance at the 2% rate for higher earnings) is approximately £5,696. While this provides a high standard of living, those residing in the South East or London will find that mortgage costs on high-value properties and childcare costs (which are also affected by the £100k threshold for tax-free childcare) can significantly reduce disposable income. Use our calculator to see exactly how individual adjustments like pension and student loans (Plan 1 or 2 often being very high at this level) impact your bottom line.