The £100,000 tax trap

Above £100,000, the tax-free personal allowance is taken away gradually. The result is a band of income taxed far more heavily at the margin than the headline rates suggest, and a set of benefits that stop entirely.

The mechanism

The personal allowance is £12,570 in 2026/27. HMRC reduces it by £1 for every £2 of adjusted net income above £100,000, so it reaches zero at £125,140.

The allowance has been £12,570 since April 2021, and following Budget 2025 it is due to stay there until April 2031. Because the threshold does not move with wages or prices, the band affects more people each year without any rate changing.

The arithmetic: why it is 60%

Take £100 of extra income inside the band, for a taxpayer in England, Wales or Northern Ireland:

• · The personal allowance falls by £50
• · Taxable income therefore rises by £150 — the £100 earned, plus the £50 of allowance now exposed
• · All £150 falls in the higher rate band at 40% → £60 of tax

That is an effective marginal rate of 60%. Employee National Insurance above £50,270 adds 2%, giving 62% on each extra £100. Above £125,140 the allowance is already gone, so the marginal rate falls back to 45%, or 47% with National Insurance.

The band is therefore taxed more heavily at the margin than the income immediately above it — which is the part people find counter-intuitive, and it is a genuine feature of the system rather than a rounding artefact.

In Scotland it is 67.5%

Income tax rates on earnings are devolved, and Scotland has six bands rather than three. The £100,000–£125,140 taper zone sits inside the Scottish advanced rate of 45%, so the same £150 of newly taxable income is taxed at 45% rather than 40%.

A Scottish taxpayer keeps £30.50 of an extra £100 in this band, against £38.00 elsewhere in the UK — a difference of 7.5 percentage points on every pound between the two thresholds. Our own Scottish coverage is thin — 12 of 1,898 listed roles, because the NHS job board we draw on covers England and Wales while NHS Scotland runs its own. The rates apply to where a taxpayer lives, not to where we found the advert.

The childcare cliff edge is sharper than the tax

The taper is gradual. The childcare thresholds are not. In England, both Tax-Free Childcare and the free hours entitlement for working parents stop once adjusted net income exceeds £100,000 — a hard cut-off, not a taper.

• · Tax-Free Childcare — the government adds £2 for every £8 paid in, up to £2,000 a year per child (£4,000 for a disabled child), for children aged 11 or under.
• · Free childcare for working parents — 30 hours a week for 38 weeks of the year, for children aged 9 months to 4 years.
• · The threshold applies to each parent separately. One partner above £100,000 ends eligibility for the household, whatever the other earns.

Because it is a cliff rather than a slope, a household with young children can be worse off in cash terms at £101,000 of adjusted net income than at £99,999. That is arithmetic, not opinion, and it is the reason this band matters more to some households than the tax rate alone implies.

Two things that are often stated too broadly: the universal 15 hours for three and four year olds in England is not income-tested and does not stop at £100,000; and the free-hours entitlements are devolved, so Scotland, Wales and Northern Ireland run separate schemes on their own terms. Tax-Free Childcare is UK-wide.

Where salary sacrifice fits

A salary sacrifice arrangement is, in HMRC's words, “an agreement to reduce an employee's entitlement to cash pay, usually in return for a non-cash benefit”. Pay is contractually reduced and the employer provides the benefit instead — commonly a pension contribution.

Because the sacrificed amount is never the employee's income, it does not form part of adjusted net income. HMRC states this directly: salary sacrifice reduces the figure the £100,000 thresholds are measured against. Employees can also reduce adjusted net income through pension contributions made outside a sacrifice arrangement.

One scheduled change is worth knowing about, and it is not yet in force. From 6 April 2029, pension contributions made through salary sacrifice above £2,000 a year will lose their Class 1 National Insurance exemption. Income tax relief is unaffected, and nothing has changed for 2026/27.

This page describes how the rules work. It is not financial advice and makes no recommendation about anyone's circumstances — what suits one household will not suit another, and that judgement needs someone who knows yours.

How many people are in this band

HMRC projects 2.06 million income tax payers with total income of £100,000 or more in 2026/27, out of 40.8 million income tax payers — about 5%. Of those, roughly 1.19 million fall in the £100,000–£150,000 range, which is the group in or close to the taper zone.

Two cautions on that figure, because it is widely repeated in a form that overstates it. It counts total income — including savings, dividends, rent and pensions — not earnings, so it is not a count of people paid £100,000 by an employer. And it is a projection from the 2023–24 Survey of Personal Incomes, which HMRC describes as provisional and expects to revise.

Sources

All figures are for the 2026/27 tax year and were checked on 19 September 2026. Rates change; if you are reading this much later, check the source.

• · gov.uk — Income Tax rates: income over £100,000
• · HMRC — Adjusted net income
• · gov.uk — Scottish Income Tax and gov.scot — rates and bands 2026/27
• · gov.uk — National Insurance rates
• · gov.uk — Tax-Free Childcare and free childcare if you're working
• · HMRC — Salary sacrifice and the effects on PAYE and the April 2029 reform
• · HMRC — Income Tax liabilities statistics, Table 2.5

What is a HENRY? · Roles that publish their pay