The 60% tax trap
Above £100,000 of adjusted net income the personal allowance shrinks by £1 for every £2 earned, and it is gone at £125,140. Each pound in that range pays 40% tax and also drags 50p out of the tax-free allowance, which is then taxed at 40%. That is 60% before National Insurance, and 62% after it. In Scotland it is 67.5% plus NI.
A pay rise from £100,000 to £125,140 is £25,140 gross and leaves £9,553 in hand. The taper is not a separate tax. It is the personal allowance being taken back, and it shows up as an unusually large tax figure rather than as a line on the payslip.
Two ways round it
The taper is measured on adjusted net income, which is total income minus pension contributions grossed up and minus gift aid grossed up. So a pension contribution that brings adjusted net income back under £100,000 restores the whole allowance. On £110,000, a £10,000 salary sacrifice costs £3,800 of take-home and puts £10,000 into the pension, plus the employer's National Insurance saving if they pass it on. Relief at source contributions have the same effect on the taper, though the higher-rate part of the relief has to be claimed.
The second is gift aid, which has the same grossed-up effect on adjusted net income. There is also a cliff, not a slope, at £100,000: eligibility for tax-free childcare and the funded childcare hours in England ends when adjusted net income goes above that figure, whatever the amount.
Your own figures
The calculator is set to £110,000 with nothing else. Add the Pension chip and raise the contribution to watch the allowance come back; change the pay to your own to see where you sit.
£6,030 a month in your pocket
£72,357 a year. You keep 66% of £110,000.
Of £110,000 a year
The full breakdown
| Year | Month | Week | |
|---|---|---|---|
| Pay | £110,000.00 | £9,166.67 | £2,115.38 |
| Income tax | -£33,432.00 | -£2,786.00 | -£642.92 |
| National Insurance | -£4,210.60 | -£350.88 | -£80.97 |
| In your pocket | £72,357.40 | £6,029.78 | £1,391.49 |
- Payroll deduction rate
- 34.2%
- Personal allowance
- £7,570.00
- Employer National Insurance
- £15,750.00
- Cost to your employer
- £125,750.00
| Band | Amount | Rate | Tax |
|---|---|---|---|
| basic rate | £37,700.00 | 20% | £7,540.00 |
| higher rate | £64,730.00 | 40% | £25,892.00 |
| Totals | £110,000.00 | 30.39% | £33,432.00 |
The total rate is income tax divided by gross annual income. It excludes National Insurance and pension deductions.