You have worked tirelessly, secured a promotion, or closed a lucrative contract, pushing your annual income past £100,000. Congratulations are in order, right? Not so fast. It is precisely at this milestone that the Personal Allowance begins to taper away.
It is widely known as the "60% Hidden Tax Trap".
How Does the Trap Work?
The standard tax-free Personal Allowance is £12,570 in 2026/27. Once adjusted net income exceeds £100,000, the allowance is reduced by £1 for every £2 of income above that level. Between £100,000 and £125,140, this creates an effective 60% marginal Income Tax rate on that slice before considering other deductions that may apply.
How Salary Sacrifice Can Help
Where an employer offers pension salary sacrifice, high earners may be able to redirect part of gross salary or a bonus into a workplace pension. This can reduce adjusted taxable income while increasing pension savings, subject to pension tax limits and the terms of the employer scheme.
- Agree an eligible salary sacrifice arrangement with your employer.
- Pension contributions are made under the employer's arrangement.
- Lower adjusted net income may help restore some or all of the Personal Allowance.
- Pension savings remain subject to annual allowance, tapering and other pension tax rules.
Unlocking Unused Limits (Carry Forward)
The standard pension annual allowance is £60,000 for 2026/27, although a lower allowance can apply in some circumstances. Subject to the rules, unused annual allowance from the previous three tax years may sometimes be carried forward. This can be particularly relevant in a year with a large bonus or unusually high income.