The £100,000 tax trap, and how pensions get you out of it
Between £100,000 and £125,140 of income you lose your tax-free personal allowance, so each extra pound is taxed at an effective 60%. Paying into a pension can win the allowance back.
Figures checked 15 Oct 2026 for the 2026/27 tax year (6 April 2026 to 5 April 2027), for England, Wales and Northern Ireland; Scotland has its own income tax bands. Tax rules change, usually at each Budget. Next review: after the next Budget, and by 6 April 2027.
How the trap works
Everyone gets a £12,570 personal allowance. For every £2 of “adjusted net income” over £100,000, you lose £1 of it, so it has gone completely at £125,140. In that band, an extra £100 of pay costs £40 of higher-rate tax plus £20 more because £50 of your allowance is now taxed too: 60%, before 2% National Insurance.
Over £100,000 can also cost families their tax-free childcare and the free childcare hours, which can be worth thousands a year more.
The way out: pension contributions
Pension contributions reduce adjusted net income. On £110,000 of income, a gross pension contribution of £10,000 brings it back to £100,000:
- £4,000 of higher-rate relief on the £10,000;
- plus £5,000 of personal allowance restored, worth £2,000 in tax;
- so £10,000 goes into the pension for a net cost of about £4,000. Through salary sacrifice it’s cheaper still, because of the National Insurance.
Paid into a personal pension, you’d pay £8,000 and the provider adds £2,000. The higher-rate relief and the restored allowance then come back through your self-assessment tax return, so you need to file one and claim.
Gift Aid donations reduce adjusted net income in the same way.
Sources: GOV.UK: income over £100,000; adjusted net income.