The £100,000 tax trap: Personal Allowance taper explained

Why the marginal rate reaches 60%

The standard £12,570 Personal Allowance falls by £1 for every £2 of adjusted net income above £100,000. At £110,000 it is £7,570; at £125,140 it is zero. Within that taper range, another £1 can attract 40p of higher-rate tax and remove 50p of allowance, adding another 20p of tax. That is 60p of Income Tax on the extra pound. Employee NI and any student loan deductions are additional; Scottish rates differ.

What counts as adjusted net income?

Adjusted net income is not simply the salary on your contract. HMRC includes taxable employment income and benefits, self-employed profits, interest, dividends, rental income and other relevant sources, before Personal Allowances. Eligible pension contributions and grossed-up Gift Aid can reduce it. For relief-at-source pensions, subtract the gross contribution: £8,000 paid net normally represents £10,000 gross. Do not deduct a contribution twice where it already reduced taxable pay.

A worked £115,000 example

With only employment income, no deductions and the standard taper, £115,000 leaves a £5,070 Personal Allowance and £36,432 Income Tax. If an eligible £15,000 pension salary sacrifice reduces pay and adjusted net income to £100,000, the allowance is restored to £12,570 and Income Tax becomes £27,432: £9,000 less tax. Employee NI also falls by approximately £300. Take-home falls by roughly £5,700 while £15,000 goes into the pension. This is not £15,000 of freely available cash; pension access and contribution limits matter.

Childcare has a separate eligibility threshold

For England's Free Childcare for Working Parents scheme, expected adjusted net income over £100,000 for either partner can make the household ineligible. Tax-Free Childcare also has an income limit. Do not confuse the working-parent entitlement with the universal 15 hours available to eligible three- and four-year-olds in England. Household income, the child's age and other conditions matter; childcare schemes differ across the UK. Our salary calculator does not calculate childcare entitlement or its cash value.

Use the calculator without overriding the taper

Enter £115,000 annual salary, select 2026/27 and leave the tax-code override off so the standard taper is applied. Compare no pension with £15,000 fixed annual salary sacrifice if that arrangement is genuinely available to you. Then inspect Personal Allowance, Income Tax, NI and take-home—not just one deduction. The calculator assumes one income source; add up other taxable income separately when assessing your full adjusted net income.

This is a planning question, not an automatic recommendation

Pension contributions may be useful, but cash needs, annual-allowance tapering, existing contributions, access restrictions and employer terms can change the decision. A bonus does not necessarily make you worse off overall, and crossing £100,000 does not instantly impose £5,028 extra Income Tax. The allowance is withdrawn gradually; some benefits have separate cliff edges. Check the applicable year's rules before acting.

Official sources

• GOV.UK: Income Tax rates and allowances
• HMRC: Adjusted net income
• GOV.UK: Pension tax relief
• GOV.UK: Free Childcare for Working Parents eligibility
• GOV.UK: Tax-Free Childcare