If you’re earning over £100,000 in the UK, you might be surprised to discover you’re facing an effective tax rate of 60% on a portion of your income. This isn’t an official tax band you’ll find on HMRC’s website, but it’s very real for thousands of middle and high earners across the country.
What is the 60% tax band?
The 60% tax band isn’t actually a tax band at all. It’s the result of how the personal allowance is withdrawn for those earning over £100,000.
Here’s how it works:
- For the 2025/26 tax year, everyone receives a personal allowance of £12,570, meaning the first £12,570 of income is tax-free.
- However, for every £2 you earn over £100,000, you lose £1 of your personal allowance.
- This continues until your income reaches £125,140, at which point your personal allowance disappears entirely.
The mathematics behind the pain
Let’s break down why this creates a 60% effective tax rate:
When you earn an additional £1 between £100,000 and £125,140, two things happen:
- You pay 40% tax on that £1 (the higher rate)
- You lose 50p of your personal allowance, which gets taxed at 40%
So the calculation looks like this:
- Direct tax on £1 earned = 40p
- Lost personal allowance = 50p (which would have been tax-free)
- Tax on that lost 50p allowance = 20p (50p × 40%)
- Total tax = 60p per £1 earned = 60%
Who does this affect?
This quirk of the tax system impacts a significant and growing number of people:
- Middle managers and senior professionals
- Experienced doctors, lawyers, and accountants
- Small business owners with fluctuating incomes
- People receiving one-off bonuses that push them over the threshold
The frozen tax thresholds mean more people are being dragged into this bracket through wage inflation and career progression, even without real increases in purchasing power.
The real-world impact
The consequences of this stealth tax band are far-reaching:
Take-home pay shock
Many people are surprised to discover that a £10,000 pay rise from £95,000 to £105,000 only nets them around £4,000 after tax and National Insurance.
Bonus disappointment
A £20,000 bonus for someone earning £100,000 could result in a net gain of just £8,000, with £12,000 going to the taxman.
Marginal thinking
Some employees negotiate to defer income, turn down overtime, or request non-cash benefits to avoid this band entirely
Strategic responses
If you’re caught in this trap, there are legitimate ways to reduce the impact:
Pension contributions
Making contributions to your pension reduces your adjusted net income. A £10,000 pension contribution for a higher-rate taxpayer effectively costs £6,000 after tax relief, but saves £6,000 in tax on income in the 60% band.
Salary sacrifice arrangements
Exchanging salary for benefits like additional pension contributions, cycle-to-work schemes, or an electric car can keep you below the threshold.
Gift Aid donations
Charitable donations extend your basic rate band, providing tax relief that can help restore some of your personal allowance.
Income timing
If you’re self-employed or have control over income timing, spreading income across tax years can help avoid the threshold.
The policy debate
This effective 60% rate has drawn criticism from across the political spectrum.
Critics argue:
- It creates a bizarre marginal tax rate higher than that paid by millionaires (who pay 45% on income over £125,140)
- It adds unnecessary complexity to the tax system
- It distorts behaviour and creates perverse incentives
- It unfairly targets successful middle-class professionals
Defenders suggest:
- It targets those who can afford to pay more
- It raises significant revenue without creating a new official tax band
- The affected group is relatively small and well-paid
Looking ahead
With tax thresholds frozen until 2028 (although we can expect this to be extended in the November 2025 Budget), fiscal drag will push more
earners into this band each year. Unless policymakers address this anomaly, the 60% effective tax rate will affect an ever-growing
proportion of the workforce.
Whether you see this as a necessary contribution from higher earners or an unfair penalty on aspiration and hard work likely depends on your perspective. What’s undeniable is that it represents a significant and often unexpected tax burden on those navigating the £100,000 to £125,140 income range.
If you’re approaching or in this income bracket, understanding how this hidden tax band works can help you make informed decisions about salary, bonuses, and pension contributions. With proper planning, you can minimise the impact of what is effectively Britain’s highest marginal tax rate.
