The 60% tax trap

Why 60, when the table says 40

The personal allowance (£12,570 of income taxed at nothing) is withdrawn by £1 for every £2 of adjusted net income above £100,000. So an extra pound costs 40p in tax directly, and drags 50p of previously untaxed allowance into the 40% band, costing another 20p. Sixty pence in the pound, on roughly £25,000 of income.

By £125,140 the whole allowance has gone, which adds £5,028 to your tax bill. After that the marginal rate is 45%, so the steepest slice of income in the UK is often this band, not the top rate band above it.

The part that runs backwards

Relief comes back at the rate the trap takes. A pension contribution reduces adjusted net income, which is the figure the taper is measured against, so inside this band every pound paid in is relieved at about 60p. Clearing the trap entirely from £125,140 means paying £25,140 into a pension for a cost to take-home pay of £10,056.

That is how the arithmetic works; it is not a recommendation. Whether tying money up until retirement suits your circumstances is a question for someone regulated, with the full picture in front of them.

Where this stops

Income tax only. National Insurance adds about 2% for an employee in this band, and a student loan adds 9% more, but both need to know how you are paid, and Scotland sets its own rates entirely. We would rather leave them out than get them half right.

£100,000 is also the line where both childcare schemes are withdrawn in full, which for a household with two children in nursery can be worth more than the tax. The childcare cliff at the same income line.