The £100k tax trap “might sound like a champagne problem” to some, said Becky Wilding in The Independent, but “those affected feel unfairly targeted”.
The affected are a growing number: Brits earning six-figure salaries are expected to exceed two million for the first time in the 2026/27 tax year, pulling tens of thousands more workers into a 60% tax rate.
What is the £100k tax trap?
In the UK, most people receive a personal allowance (tax-free income) of £12,570, but professionals earning between £100,000 and £125,140 lose that, creating a 60% effective tax rate. For graduates repaying student loans, the news is even worse: the tax rate can rise to 71% or higher.
The effect is also punishing for parents of young children because they lose tax-free childcare and free hours. The loss of their entitlement to 30 hours per week of free childcare can carry an annual cost of £9,600 per child.
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Is it a big problem?
It means that it pays more to earn £99,999 than it does to earn £144,500, and “by any measure, this is farcical”, said The Telegraph’s investment editor James Baxter-Derrington. And “before you reach for your tiniest violin”, consider the overall impact, regardless of what you earn.
A nation that “tells people ambition doesn’t pay will soon run out of ambitious people”. And as they are the ones tending to earn the higher amounts of money – money that is taxed and spent in the economy – we will all be poorer should we lose them.
Above £125,140, the rate “falls back” to 47%, and a system where “rates rise and then fall” as income goes up is “indefensible”, said the Tax Policy Associates’ Dan Neidle in the Financial Times.
It is “one of the UK tax system’s most notorious quirks”, said Michael Healy on LBC, and it’s led to “distorted behaviour”. Four in five people earning £90,000- £125,000 have “actively taken steps” to earn below the £100,000 threshold. The arrangement can make small pay rises feel disappointing because you keep much less of them, and it affects bonuses and overtime decisions.
What can be done?
The government should “reform” thresholds and introduce a dedicated UK Equities Investment Scheme to provide income tax relief on UK-listed shares held in ISAs. It would mean that higher-rate taxpayers could “receive relief” of up to £8,000 annually, said Healy.
On childcare, the Centre for British Progress think-tank has suggested replacing the £100,000 cliff edge with a new 3% tax on income over £100,000 for each child receiving support. This means the cliff edge “disappears” and the “confiscatory jump” is “replaced by a smooth phaseout”, said the FT. Those just above £100,000 will hardly feel the effect, while higher earners “face a clear, proportionate trade-off”.
For taxpayers themselves, there is a fairly straightforward solution that’s “(legal!) and financially savvy”, said The Independent. You can increase your pension contributions to a level where your remaining taxable income is below £100,000, sacrifice salary for other employee benefits, such as additional days of leave, or make Gift Aid donations.
