The 60% tax trap, and how salary sacrifice can get you out

If you earn between £100,000 and £125,140, you're losing 60p of every extra pound to Income Tax. That's the 60% tax trap. It isn't a band you'll find on any HMRC rate card, which is why most people only notice when a pay rise barely shows up in their bank account.

This article explains how the trap works, how to check whether you're in it, and what can bring you back under the line. It's written for UK employees paid through PAYE.

• The 60% tax trap is the personal allowance taper, which applies between £100,000 and £125,140 of adjusted net income.
• It isn't a published tax rate, so nothing on your payslip will tell you it's happening.
• It’s not your salary that matters, it’s your adjusted net income. Which is your total taxable income before your Income Tax or National Insurance is taken, minus specific tax reliefs and deductions like salary sacrifice, pension contributions or Gift Aid.
• Anything that reduces adjusted net income moves you back down the taper. Pension contributions and an electric car through salary sacrifice both do this.
• Crossing £100,000 also removes Tax-Free Childcare and funded childcare hours, which can be worth around £8,000 a year per child. For parents of young children, this can be bigger than the tax impact.

The 60% tax trap is the effective tax rate that applies to earnings between £100,000 and £125,140. It happens because your tax-free personal allowance is withdrawn as your income rises through that band. You pay higher-rate tax on the new income, and tax on the allowance you're losing at the same time.

Here's the maths. The personal allowance is £12,570 for the 2026/27 tax year. 

Once your adjusted net income passes £100,000, HMRC reduces that allowance by £1 for every £2 you earn above the threshold. 

By £125,140, it's gone completely.

So imagine you earn £100 more. 

You pay £40 of higher-rate tax on it. 

You also lose £50 of personal allowance, and that £50 is now taxable at 40%, which costs another £20. 

That's £60 of tax on £100 of income.

For some employees the real figure is higher. Add 2% employee National Insurance and the marginal deduction lands at about 62%.

Notice what that table does. The 60% band sits above the 45% additional rate in cost, but below it in income. Someone earning £130,000 keeps more of their next pound than someone earning £110,000.

Nobody pays 60% income tax as a headline rate. The 60% figure is an effective marginal rate that applies to UK employees with adjusted net income between £100,000 and £125,140. It won't appear on your payslip, your P60 or any HMRC document, which is exactly why so few people see it coming.

The threshold has sat at £100,000 since 2010 and hasn't moved with inflation. Each year, more people cross it.

You can be caught without a six-figure salary. If you earn £94,000 and take a £10,000 bonus, you're in the band. Rental income, dividends and savings interest count too.

If you're a Scottish taxpayer, the taper works in exactly the same way, because the personal allowance is set UK-wide. Scottish Income Tax rates differ from the rest of the UK, though, so the effective marginal rate in this band is higher still. Check the current Scottish rates on GOV.UK before working out your own position.

Adjusted net income is your total taxable income from all sources, minus certain reliefs. Those reliefs include gross pension contributions and Gift Aid donations. It's the figure HMRC uses to work out your personal allowance, and it's rarely the same as your salary.

Everything counts towards it. Salary, bonus, commission, rental profit, dividends, savings interest and taxable benefits all go in.

This is the part that matters most, so it's worth stating plainly. Because the threshold is based on adjusted net income rather than salary, anything that reduces your adjusted net income moves you back down the taper. That's the mechanism behind every option below.

You can work out your net adjusted income using HMRC's guidance.

There are a handful of legitimate ways to reduce taxable income in the UK, and they all work the same way. They reduce your adjusted net income, which restores some or all of your personal allowance.

Pension contributions. Money paid into a pension, whether through salary sacrifice or as a personal contribution, comes off your adjusted net income. Pound for pound, this is generally the most efficient option available in this band. The annual allowance is £60,000 for 2026/27, and you may be able to carry forward unused allowance from the previous three tax years.

One thing to watch in future is timing. From April 2029, only the first £2,000 a year of pension salary sacrifice is expected to be exempt from National Insurance. Income Tax relief isn't affected.

An electric car through salary sacrifice. The salary you give up comes out of your pre-tax pay, so it reduces your adjusted net income too. More on how this one works below.

Gift Aid donations. The gross value of a Gift Aid donation comes off your adjusted net income.

Cycle to work. Smaller in scale, but it's a genuine salary sacrifice arrangement and it reduces pre-tax pay in the same way.

Salary sacrifice used to work for almost anything. Then, in April 2017, the Optional Remuneration Arrangements rules changed things. Most sacrifice benefits are now taxed on the higher of the salary given up or the value of the benefit, which cancels out the tax saving. Gym memberships, health insurance and phones all fall into that category.

Three things were deliberately still left in: pensions, cycles, and cars with CO2 emissions of 75g/km or less.

That’s what makes electric cars work here. You save Income Tax and National Insurance on the full amount you sacrifice, and you're taxed only on the Benefit-in-Kind value of the car. For 2026/27, the BiK rate on a fully electric car is 4% of its list price, per GOV.UK company car appropriate percentages.

This isn't a loophole someone found. It's a deliberate policy choice by the government to make switching to electric driving cheaper.

The amount you sacrifice for the car comes out of your pre-tax pay, so it reduces your adjusted net income. 

The BiK value of the car is then added back on. The net effect is the difference between the two, and because the BiK rate on an electric car is low, that difference can be large.

In one line:

Reduction in adjusted net income = amount sacrificed − Benefit-in-Kind 

Here's a worked example. This is an illustration, not a quote, and your own position will differ.

At £106,000, this person's personal allowance had already been cut by £3,000, down to £9,570. At £98,520 they get the full £12,570 back. 

That's £3,000 of income moving from being taxed at 40% to being taxed at nothing, worth £1,200 on its own. On top of that sits the Income Tax and National Insurance saved on the £9,000 sacrificed.

Now the honest bit. A car won't clear a large gap by itself. If your adjusted net income is £125,000, sacrificing for an electric car will move you down the taper, but it won't get you under £100,000. Some people combine the two levers, using a car and a pension contribution together.

What you actually save depends on your salary, your tax band, the car you choose and the tax year.

If you have young children, this section probably matters more than the tax. Cross £100,000 of adjusted net income and you lose Tax-Free Childcare and the funded childcare hours for working parents. There's no taper and no sliding scale. A single pound over the line means you’re no longer eligible for either government support mechanism

Tax-Free Childcare adds £2 for every £8 you pay in, up to £2,000 per child a year, or £4,000 for a disabled child. It's available across the UK.

Funded childcare hours are worth considerably more. In England, eligible working parents get 30 hours a week of ‘free’ childcare during term time, from the term after their child turns nine months until they start school. The government puts the average value at around £8,000 a year per child (GOV.UK, 2026).

The funded hours scheme is in England only. Scotland funds 1,140 hours a year for all three and four year olds, and that isn't income tested. Wales and Northern Ireland run different schemes again. Tax-Free Childcare is the only part of this that works the same way across the UK.

Put those numbers together and the cliff edge gets steep. A parent in England with two children in nursery can lose several thousand pounds of support by earning one pound too much.

This is where an EV paid for through salary sacrifice does something the tax saving alone doesn't. Bringing your adjusted net income back below £100,000 restores your eligibility. For a parent, the childcare entitlement can be worth more than the tax relief on the sacrifice, depending on how many children you have, how much your childcare setting costs, and where you live.

This is the rule people miss, and getting it wrong is expensive.

The £100,000 test applies to each parent individually. It isn't a household figure. If either parent has adjusted net income above £100,000, the family loses the entitlement entirely, even if the other parent earns nothing at all.

So a couple earning £102,000 and £20,000 gets no Tax-Free Childcare and no funded hours. A couple earning £99,000 each, £198,000 between them, gets the full entitlement.

Bringing your own income under £100,000 only helps if your partner is under it too. Check both positions before you make any decisions.

One more practical point. Eligibility is based on your expected adjusted net income for the tax year, and you reconfirm it every three months. If you end up over the threshold later in the year, you may have to repay support you've already received. A bonus in February can undo a calculation you made in April.

You can check your own position against the Tax-Free Childcare eligibility rules on GOV.UK.

Childcare vouchers closed to new entrants in October 2018. If you're not already in a scheme, you can't join one now.

If you are still in one, you can usually keep it while you stay with the same employer and don't take a break of more than a year.

There's a quirk here worth knowing. Childcare vouchers have no £100,000 income cap, unlike Tax-Free Childcare. Some high earners already in a voucher scheme are better off staying put. You can't hold both at once, and once you move to Tax-Free Childcare you can't go back. Your employer can tell you what your scheme allows.

If your employer offers EV salary sacrifice with Octopus EV, you can login to choose an electric car and the cost comes out of your pre-tax salary each month. The monthly amount covers the car, servicing, maintenance, tyres and breakdown cover, plus insurance if your employer includes it (which most do). You can choose a discounted home charger or charging credit as well, bringing down your running costs further.

For someone in the taper band, there's a particular logic to it. The salary you're giving up was being taxed at an effective 60%, so the cost to your take-home pay is a good deal smaller than the sacrifice figure suggests.

Octopus EV is one option among several, and what you'd pay depends on your salary, your tax band and the car you pick. Have a look at what EVs are available through salary sacrifice.

For charging, Octopus Energy offers an exclusively discounted home charging tariff for Octopus EV drivers, and Electroverse gives access to public charging across the UK and Europe on one bill. 

Salary sacrifice reduces your pre-tax pay, and that has knock-on effects worth understanding before you commit.

• Anything linked to salary can move. Pension contributions, statutory maternity and paternity pay, redundancy calculations and mortgage affordability assessments can all be based on your reduced salary. If you're planning to borrow or start a family, factor this in.
• There's a floor. Salary sacrifice can't take your pay below the National Minimum Wage or National Living Wage, which is £12.71 an hour for ages 21 and over from April 2026.
• Employers set their rules. Your employer decides who's eligible and what the scheme covers, so check the terms with them.
• Ask what happens if you leave. Most schemes have some form of cover for leavers and life events. Find out what yours covers before you sign.
• Watch your whole income. Adjusted net income includes everything, so a bonus later in the year can push you back over £100,000 after you've done your sums.

For advice on your own situation, speak to a qualified accountant or tax adviser. Check scheme terms with your employer.

What is the 60% tax trap?

It's the effective 60% tax rate on earnings between £100,000 and £125,140. Your £12,570 personal allowance is withdrawn by £1 for every £2 of adjusted net income above £100,000, so you're taxed on the new income and on the allowance you're losing at the same time.

Who pays 60% income tax in the UK?

UK taxpayers with adjusted net income between £100,000 and £125,140. It isn't a published rate, so it never appears on a payslip. Including 2% employee National Insurance, the real marginal deduction for most employees is closer to 62%. Scottish taxpayers face the same taper at different rates.

How do I reduce my adjusted net income?

Gross pension contributions and Gift Aid donations both come off your adjusted net income. Salary sacrifice arrangements reduce it too, because they cut your pre-tax pay. With an electric car, the reduction is the amount sacrificed minus the Benefit-in-Kind value of the car.

Can salary sacrifice get me below £100,000 for childcare?

It can, if the gap is small enough. Sacrificing £9,000 for an electric car with a £1,520 BiK value reduces adjusted net income by £7,480. Whether that clears £100,000 depends on where you started. Both parents must be under £100,000 for the family to qualify.

Can I still get childcare vouchers through salary sacrifice?

Only if you joined before October 2018 and have stayed with the same employer without a break of more than a year. The scheme is closed to new entrants. Unlike Tax-Free Childcare, vouchers have no £100,000 income cap, so some high earners already in a scheme choose to stay in it.