Tax Over 100k
Updated on September 04, 2025
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Tax over £100k: the 60% tax trap explained
In the UK, earning over £100,000 reduces your personal allowance by £1 for every £2 of income, creating an effective marginal tax rate of up to 60% between £100,000 and £125,140.
Below is a clear walk-through of adjusted net income and the practical steps you can take: pensions, salary sacrifice, and Gift Aid, to bring the bill down, especially if you’re a US expat working in the UK.
Tax over 100k? What actually happens to your personal allowance
If your income goes over £100,000, your personal allowance starts to reduce by £1 for every £2 of adjusted net income above £100,000. Once your income reaches £125,140, the allowance is fully gone.
Are US expats affected by the over 100k tax?
If you were taxed on the remittance basis up to and including 2024/25, you generally lost entitlement to the UK Personal Allowance and the CGT annual exempt amount, subject to limited exceptions in law (for example, where entitlement arises under specific treaty or statutory provisions). From 6 April 2025, the remittance basis is abolished and replaced by the 4-year foreign income and gains (FIG) regime; if you claim FIG, you also lose Income Tax and CGT allowances for the years you claim.
What is adjusted net income?
It’s your total taxable income before personal allowances, after certain deductions. Common deductions include gross pension contributions, Gift Aid donations, and some trading losses. If you lower adjusted net income below a threshold, you can restore some or all of the allowance.
Because you’re paying tax on more of your income as the allowance shrinks. For every extra £1 earned between £100,000 and £125,140, you also lose 50p of allowance. That lost 50p is taxed at your marginal rate, on top of the tax on the £1 itself.
What effective rate does that create in England, Wales, and Northern Ireland?
Earning between £100,000 and £125,140 creates an effective 60% tax rate in England, Wales, and Northern Ireland.
Scottish bands and rates differ. Many earners over £100,000 face a higher marginal rate in this slice, which pushes the effective rate above 60%. A typical outcome is about 67.5% because the 50p of lost allowance is taxed at a higher rate.
Can US expats do anything to reduce the impact?
Yes, but the UK rules apply first. Pension contributions and Gift Aid reduce adjusted net income and can pull you out of the zone. Any US relief comes later on your US return and doesn’t change how the UK tax is calculated.
📌 Practical ways to manage the allowance withdrawal
- Increase gross pension contributions or use salary sacrifice to reduce adjusted net income.
- Make Gift Aid donations and record them properly.
- Look at the timing of bonuses or dividends if you have flexibility.
- Watch benefits in kind and other items that can push you over £100,000.
The “60% tax trap” explained (and who it hits)
The trap sits between £100,000 and £125,140. In England, Wales, and Northern Ireland it overlaps the 40% higher rate, which is why the effective rate is 60% in this band. In Scotland, the overlapping rate is higher, so the effective rate is higher too.
Who gets caught most often?
People with base pay near £100,000 who receive a bonus, vest RSUs, exercise options, or have taxable benefits that nudge them into the allowance withdrawal. US expats in the UK see this a lot because compensation often mixes salary, equity, and allowances.
How can you tell you are in the trap this year?
Check adjusted net income on your payslip or self assessment and look at the personal allowance line. If the allowance is reduced once you pass £100,000 and disappears by £125,140, you are affected.
Two clear examples to spot it quickly
- England, Wales, NI example
You earn £115,000. Your allowance has been reduced by £7,500, leaving £5,070. Every extra £1 in this range is taxed at an effective 60%, so a £5,000 bonus leads to about £3,000 of tax in this slice unless you plan around it. - Scotland example
You earn £118,000. The allowance is nearly gone and the overlapping Scottish rate is higher than 40%. The effective rate on extra income in the withdrawal band is about 67.5%. A £5,000 bonus could see roughly £3,375 of tax in this slice unless you act to reduce adjusted net income.
Does US tax relief change the UK calculation?
No. UK tax is computed first. You can still use US foreign tax credits or other US reliefs on your US return, but they do not alter the UK personal allowance withdrawal itself.
Still confused about the 60% tax trap? Get in touch for help.
Adjusted net income: what counts and how HMRC calculates it
Adjusted net income is your total taxable income before personal allowances, after certain allowed deductions. HMRC uses it to decide how much of your personal allowance is withdrawn once you pass £100,000.
If you can bring adjusted net income back toward £100,000, you can restore some or all of that allowance.
Which income items push adjusted net income up?
- Salary, bonuses, commissions.
- Benefits in kind on your P11D, such as medical cover or a company car.
- Savings interest, dividends, rental profits, and chargeable gains.
- Taxable employer equity (for example, vested RSUs or option exercises).
Which deductions bring adjusted net income down?
- Gross pension contributions to a workplace or personal pension.
- Gift Aid donations that you claim for the year.
- Certain trading losses and qualifying interest, where relevant.
What records should you keep so this is easy at year end?
- Monthly payslips, P60, and any P11D.
- Pension statements showing gross contributions and dates.
- Gift Aid receipts and charity confirmations.
- A simple tracker with year-to-date income, each deduction, and your current adjusted net income estimate.
Legal ways to cut your bill: pensions, salary sacrifice, and gift aid
Can pension contributions really help with tax over 100k?
Yes. A gross pension contribution reduces adjusted net income and can restore the personal allowance. Relief applies at your marginal rate, so the impact is strongest within the £100,000 to £125,140 band.
How does salary sacrifice compare with paying into a pension directly?
Salary sacrifice reduces contractual pay in exchange for an employer pension contribution. That lowers adjusted net income and can also save National Insurance. Some employers add their NI saving to your pension, which boosts the value further. If sacrifice isn’t available, a normal gross contribution still reduces adjusted net income for the year.
Where does Gift Aid fit in?
Gift Aid donations reduce adjusted net income when you claim them in Self Assessment and can extend your basic-rate band. If you’re close to £100,000, making or bringing forward a donation can restore part of your allowance. Keep all charity confirmations.
Beyond income tax: knock-on effects once you earn over 100k
How does Child Benefit interact with higher income?
If you or your partner receives Child Benefit, the High Income Child Benefit Charge can claw back some or all of it as one partner’s income rises. You can still keep claiming to protect National Insurance credits, then settle the charge through Self Assessment.
What happens to student loan repayments?
Repayments are a slice of income above your plan threshold. Earning over £100,000 does not change the percentage, but more of your income sits above the threshold, so the monthly deduction can jump around bonus time.
Do savings and dividend allowances still help at higher incomes?
They get tighter. Higher and additional rate taxpayers have smaller or no personal savings allowance, and the dividend allowance is now small. If you hold cash or shares outside tax shelters, interest and dividends can add to your bill once you are already dealing with tax over 100k.
High earner action plan: timelines and common mistakes
A simple timeline keeps you ahead of the 60% tax trap.
- April to June
- Estimate adjusted net income for the new tax year.
- Set a pension target that would keep you closer to or below £100,000 if a bonus lands.
- Confirm who in the household is the higher earner if Child Benefit is in play.
- July to September
- Review payslips, any benefits, and midyear bonuses.
- Ask HR about salary sacrifice for pension and how quickly changes take effect.
- Decide whether Gift Aid will be regular or one off, and keep the confirmations.
- October to December
- Re-forecast adjusted net income using actual year-to-date figures.
- If a bonus is expected, ask whether payment timing is flexible.
- Top up pension contributions if you are drifting into the withdrawn-allowance band.
- January to 5 April
- Make final pension contributions and Gift Aid donations in time to count this year.
- Harvest capital losses where appropriate to offset gains.
- Double-check potential Child Benefit charges and plan for Self Assessment.
Which mistakes cause the biggest headaches?
- Wrong adjusted net income. Forgetting benefits in kind, taxable employer equity, or savings interest throws off your plan. Keep a simple tracker and update it whenever something changes.
- Late claims. Missing the Self Assessment entry for Gift Aid or not documenting pension contributions can leave relief on the table.
- Poor documentation. No donation receipts, no pension confirmations, and no payslip trail make it hard to support your figures if HMRC asks.
- Assuming UK and US rules match. They often do not. A move that helps with the UK personal allowance withdrawal might need separate handling on your US return.
FAQs
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Do my employer’s pension contributions lower my adjusted net income, or only my own?
Only your own gross contributions (or salary sacrifice) reduce adjusted net income; regular employer contributions don’t.
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Can I fix last year’s 60% hit after 5 April?
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My RSUs vested and I got a bonus. Does selling the RSU shares help avoid the trap?
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Will PAYE automatically collect the 60% effective rate, or will I get a surprise bill?
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Do capital gains push me into the 60% band too?
Prefer to talk it through? Schedule your free callback today.
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