What is the 60% effective tax rate, and who pays it?
Income between £100,000 and £125,140 is taxed at an effective 60%, because every £2 of income in that range removes £1 of personal allowance as well as attracting 40% tax on itself. Nothing announces this rate and it appears in no rate table, but it is the highest marginal rate most people will ever face.
- The mechanism: £1 of personal allowance withdrawn for every £2 of income above £100,000.
- The rate: 40% on the income plus 40% on the allowance lost, which is 60% in total.
- The range: £100,000 to £125,140, where the allowance reaches zero.
- The fix: a pension contribution or Gift Aid donation reduces adjusted net income pound for pound.
01 Where the 60% comes from
The personal allowance of £12,570 is reduced by £1 for every £2 of adjusted net income above £100,000, and it reaches zero at £125,140. Income in that band is taxed at 40% like any other higher-rate income; what makes it different is that earning it also destroys allowance that was shielding other income from tax.
Take an extra £100 of salary at £110,000. The £100 attracts £40 of tax. It also removes £50 of personal allowance, and that £50 was previously untaxed income now taxed at 40%, costing another £20. Total tax on the extra £100 is £60.
The rate appears nowhere in the published rate tables because it is not a rate — it is the arithmetic consequence of two rules interacting. It has been in place since 2010, and because the £100,000 threshold has never been raised, more people cross into it every year.
Source: Income over 100,000 pounds
02 What counts, and what does not
The test is adjusted net income, which is total taxable income less personal pension contributions grossed up, less Gift Aid donations grossed up. It includes salary, bonus, self-employment profit, rental profit, savings interest, dividends and taxable pension withdrawals. It is not your salary, and someone on a £95,000 salary with £8,000 of rental profit is in the band.
It also includes one-off events. A bonus, a share vesting, a chargeable event gain on an investment bond, or a large pension withdrawal can put an otherwise comfortable higher-rate taxpayer into the 60% band for a single year. Those are the cases worth planning, because the taper is annual and the year is the only unit that matters.
Scotland has the same taper, applied on top of Scottish rates, so the effective rate there is higher still.
03 Getting out of it
A personal pension contribution reduces adjusted net income by the grossed-up amount, so £20,112 of net contribution — £25,140 gross — takes someone at £125,140 back to £100,000 and restores the full personal allowance. The relief on that contribution is effectively 60%, which is the best rate available in the UK tax system.
Gift Aid works the same way for the same reason: the grossed-up donation reduces adjusted net income. So does salary sacrifice, which removes the income before it is ever counted, and it has the additional advantage of saving National Insurance on top.
The move has to happen inside the tax year, and it needs the year's income to be known — which is why it usually happens in February and March rather than in April. Someone whose bonus is confirmed in January has two months to decide what to do about it.
Shows: the personal allowance you lose, the effective tax on the income above £100,000, and the pension contribution that removes it. Ignores: Scottish rates, National Insurance, the tapered annual allowance, and any other income-related charge.
On the defaults above, the worked example shows £10,800. You lose £9,000 of personal allowance; a gross pension contribution of £18,000 takes income back to £100,000 and restores it.
Source: Pension tax relief
Sixty per cent is the highest marginal rate almost anyone in Britain pays, and it is charged on a band that no rate table mentions, to people who mostly do not know they are in it. The reason it persists is that it looks like a technicality and behaves like a cliff. If your adjusted net income is going to land between £100,000 and £125,140 this year, a pension contribution of the excess is the single highest-return financial decision available to you — better than any investment return, because it is certain and immediate. Work out the number in February, not in June.
FAQ
Is 60% really the rate, or is that an exaggeration?
It is the arithmetic. £100 of extra income in the band costs £40 of tax on itself and £20 more because it removes £50 of personal allowance that was untaxed. The published rate is 40%; the marginal rate on that band is 60%.
Does a salary sacrifice work as well as a pension contribution?
Better, usually. Sacrificed salary never counts as your income, so adjusted net income falls and National Insurance is saved as well. The limits are that it must be agreed with the employer in advance and cannot take pay below the National Minimum Wage.
What if my income is above £125,140?
The personal allowance is already gone, so the taper no longer applies and the marginal rate returns to 45%. The 60% band is a window between £100,000 and £125,140, not a rate that continues upward.
Sources
Regulator references
- Income over 100,000 pounds · GOV.UK · 2025The personal allowance taper that creates the 60% effective band.Last verified: 2026-09-07
- Income Tax rates and Personal Allowances · GOV.UK · 2025The band boundaries every figure in this post is calculated against.Last verified: 2026-09-07
- Pension tax relief · GOV.UK · 2025How relief at source and net pay differ, and the earnings limit on relief.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.