What is the 60% tax trap?

The 60% tax trap is the effective 60% income tax rate paid on earnings between £100,000 and £125,140 in the UK. It happens because the £12,570 personal allowance is withdrawn by £1 for every £2 earned above £100,000, on top of the 40% higher rate. With National Insurance, the marginal rate reaches 62%.

Here is how it works. For each extra £2 earned above £100,000, the personal allowance falls by £1. That £1 is then taxed at 40%. So £2 of extra pay triggers 80p from the higher rate plus 40p from losing allowance, which is £1.20, or 60%. For example, a £10,000 pay rise from £100,000 to £110,000 would leave only £4,000 after income tax, before National Insurance.

The trap ends at £125,140, where the allowance is gone. Above that, the additional rate of 45% applies. Because the £100,000 threshold has not changed since 2010, more people are caught each year as pay rises. In Scotland the effective rate in this band is higher, at about 67.5%. Many experts across the political spectrum see the design as accidental rather than intended.

Parents face an extra cliff edge. Earning over £100,000 removes eligibility for Tax-Free Childcare and for most government-funded childcare hours in England. Many people in this band use pension contributions or salary sacrifice to bring their taxable income back below £100,000. Critics say the trap discourages extra work and makes the system needlessly complex.

Who it affects: Earners between £100,000 and £125,140