Why is the effective rate 60% and not 40%?

You pay 40% income tax on the slice between £100,000 and £125,140, and you also lose £1 of personal allowance for every £2 earned in that band, which adds roughly another 20 percentage points of effective tax.

What is the fastest way to reduce my adjusted net income?

Salary sacrifice into a pension is usually most efficient, since it lowers ANI and saves employee National Insurance. A SIPP contribution or a Gift Aid donation achieves the same ANI reduction without the NI saving.

‹ All playbooks

The £100k cliff

The £100,000 Tax Trap Explained

7 min read. Last verified 22 June 2026. 2026/27 rules.

The short answer

Between £100,000 and £125,140 of adjusted net income you pay 40% income tax and simultaneously lose £1 of personal allowance for every £2 earned, an effective rate of about 60%. Above £100,000 of ANI you also lose Tax-Free Childcare and funded hours entirely.

Key facts

The personal allowance taper runs from £100,000 to £125,140 of adjusted net income.
The combined effect of 40% tax plus the taper is an effective rate of about 60%.
Tax-Free Childcare (worth up to £2,000 per child per year) is lost entirely above £100,000 of ANI.
Salary sacrifice, a SIPP, or Gift Aid all reduce ANI by the gross contribution or donation.

The personal allowance is the slice of income you can earn tax free. Above £100,000 of adjusted net income, HMRC takes it away at £1 for every £2 you earn, so it is gone by £125,140.

Why it is 60%, not 40%

On income between £100,000 and £125,140 you pay 40% income tax, and you also lose personal allowance that was previously shielding income from tax. The combined effect is an effective rate of about 60%. A pay rise in this band is worth far less than it looks.

Try it yourself

Drag the slider to see the effective marginal rate and take-home pay at any salary from £90,000 to £125,140.

Salary£100,000

£90,000£100,000 cliff edge£125,140

Effective marginal rate on your next £1

52%

Below £100,000: ordinary higher-rate income tax plus National Insurance, no taper in play yet.

Take-home, annual: £68,557
Take-home, monthly: £5,713

England, 2026/27 rates. Salary only, no childcare or pension adjustments -- see the full calculator below for those.

It is not just tax

Tax-Free Childcare, worth up to £2,000 per child per year, is lost above £100,000 of ANI.
Funded childcare hours in England are also lost above the same line.
These losses are based on each parent's ANI, so one earner crossing the line can cost the household both.

Three ways out

Salary sacrifice into a pension: lowers ANI and saves National Insurance too.
A personal pension or SIPP: the gross contribution reduces ANI.
Gift Aid donations: the gross donation reduces ANI in the same way.

Common questions

Why is the effective rate 60% and not 40%?: You pay 40% income tax on the slice between £100,000 and £125,140, and you also lose £1 of personal allowance for every £2 earned in that band, which adds roughly another 20 percentage points of effective tax.
What is the fastest way to reduce my adjusted net income?: Salary sacrifice into a pension is usually most efficient, since it lowers ANI and saves employee National Insurance. A SIPP contribution or a Gift Aid donation achieves the same ANI reduction without the NI saving.

Related playbooks

Sources

Figures verified against gov.uk and gov.scot on 30 June 2026. Constants version 2026/27.3. 2026/27 tax year. This is a modelling tool for general insight, not financial or tax advice.