The £100k trap
In brief: For income between £100,000 and £125,140, the effective marginal tax rate is 60%. This is not a separate tax rate — it emerges from the interaction of the 40% higher rate and the withdrawal of the Personal Allowance. Understanding the mechanics makes the numbers feel less arbitrary and more manageable.
If you’ve recently crossed the £100,000 income threshold — or discovered that your retirement income might do so — you’ve probably had the uncomfortable realisation that a significant portion of that extra income isn’t going to you. The effective marginal rate of 60% in this band is the highest in the mainstream UK income tax system, higher than the 45% additional rate that applies above £125,140.
This surprises a lot of people. Most tax explanations stop at the headline bands — 20%, 40%, 45% — and the 60% trap sits beneath the surface, unannounced. You are not doing anything wrong. The system simply produces this result, and it is worth understanding exactly why.
What the taper is
The Personal Allowance is the amount you can earn each year before paying any income tax. For 2026/27 it stands at £12,570.
This allowance does not disappear all at once when your income rises. Instead, it tapers away gradually above a threshold:
- For every £2 of income above £100,000, your Personal Allowance reduces by £1
- At £125,140, the reduction equals the full £12,570 allowance, and it is entirely gone
- Above £125,140, you have no Personal Allowance at all — income tax at 45% applies from the first pound
The allowance is tested against your adjusted net income — which is your gross income minus certain deductions, most notably gross pension contributions. This matters and we come back to it below.
Why the effective rate is 60%
The 60% rate is the sum of two things happening simultaneously on the same slice of income.
Take any £2 earned inside the taper band — say, £100,001 and £100,002. On those two pounds:
- You pay 40% higher rate tax. That is £0.80 in tax on £2 of income.
- Your Personal Allowance reduces by £1. That £1 of allowance was sheltering £1 of income from any tax. Losing it means an extra £1 is now taxed at 40%, costing you £0.40.
Total tax on £2 of income: £0.80 + £0.40 = £1.20, which is 60%.
A worked example
Emma has total income of £110,000.
Her Personal Allowance is normally £12,570. But her income exceeds £100,000 by £10,000, so her allowance is reduced by £5,000 (half the excess). Her effective Personal Allowance is £7,570.
| Income slice | Amount | Rate | Tax |
|---|---|---|---|
| Personal Allowance | £7,570 | 0% | £0 |
| Basic rate band | £37,700 | 20% | £7,540 |
| Higher rate — up to £100,000 | £54,730 | 40% | £21,892 |
| Higher rate — taper band (£100,001–£110,000) | £10,000 | 60% (effective) | £6,000 |
| Total tax | £35,432 |
Compared with someone earning exactly £100,000 (tax: £27,432), Emma pays £8,000 more tax on £10,000 of extra income. The effective rate on that additional £10,000 is exactly 60%.
Who it affects in retirement
The taper is often discussed in the context of employment income — a salary or bonus pushing someone past £100,000. In retirement, the same arithmetic applies, but the income comes from different sources.
Retirement income is aggregated for tax purposes. All of the following count:
- State Pension
- Defined benefit (final salary) pension income
- Drawdown withdrawals (taxable portion)
- UFPLS withdrawals (75% taxable)
- Rental income
- Part-time employment or self-employment income
- Interest from cash savings above the Personal Savings Allowance
It is entirely possible to approach or cross £100,000 without a single large income source, simply because several modest sources add up.
Example. David is 68. He receives:
| Source | Annual income |
|---|---|
| State Pension | £11,502 |
| Defined benefit pension | £38,000 |
| SIPP drawdown | £35,000 |
| Rental income | £18,000 |
| Total | £102,502 |
David’s income exceeds £100,000 by £2,502. His Personal Allowance reduces by £1,251, from £12,570 to £11,319. The last £2,502 of his income is taxed at an effective 60%, costing him an extra £501 compared with what the headline 40% rate would suggest.
This may seem like a modest amount in David’s case. But if his drawdown rises, his rental income increases, or the State Pension triple lock takes the full pension past £12,000, the exposure grows. Year by year, the interaction compounds.
The cliff edge at £100,000
There is a psychological jolt at exactly £100,000 that is worth naming plainly.
Earning £99,999 means your Personal Allowance is untouched. Earning £100,001 means your allowance starts reducing, and the effective rate on that £1 above the threshold jumps from 40% to 60%. There is no gradual lead-in — the marginal rate changes suddenly at the threshold.
This makes the band from £100,000 to £125,140 unlike any other part of the income tax system. Below it, the rates increase by steps: 0%, 20%, 40%. Above it (at £125,140), the rate drops back to 45% because the allowance is fully gone and the taper effect disappears. Inside the band, the effective rate is uniquely high.
The practical consequence is that the income management decisions you make around this threshold — particularly around how much drawdown to take in any given year — carry a larger tax consequence than decisions made further from the boundary. The same £5,000 of additional drawdown costs very different amounts depending on whether your total income would land at £98,000 or £103,000.
Child Benefit and a separate spike
It is worth briefly noting another effective marginal rate spike that sits lower in the income range, as it affects some people approaching retirement who still have younger children.
The High Income Child Benefit Charge claws back Child Benefit where one partner’s income exceeds £60,000, with full clawback at £80,000 (2026/27 thresholds). This creates an effective marginal rate increase in the £60,000–£80,000 band that sits on top of the standard 40% rate. The exact effective rate depends on the number of children and the Child Benefit amounts in payment.
This is mainly relevant for working-age households rather than retirees, but it is worth knowing the spike exists — particularly for those taking early retirement with part-time earnings or a younger partner still in employment.
How FutureClear models the taper
FutureClear calculates the Personal Allowance taper automatically. There is no toggle or setting required.
For each year in your projection, the engine:
- Aggregates all income sources active in that year — State Pension, DB pension, drawdown, rental income, and any employment income you have entered
- Tests whether adjusted net income exceeds £100,000
- Reduces the Personal Allowance proportionally (£1 for every £2 above the threshold, to a floor of zero at £125,140)
- Applies the corrected allowance when calculating the income tax for that year
The tax tab in your projection shows the effective marginal rate for each income band. When total income falls in the taper range, the 60% effective rate appears explicitly — not buried inside the numbers, but labelled so you can see exactly where it is applying and by how much.
This makes it straightforward to compare scenarios that produce different total income levels and observe directly how the taper interacts with your income composition.
The interaction with pension contributions
There is one mechanical fact about the taper that is worth understanding clearly.
The taper is tested against adjusted net income, which is your total income minus gross pension contributions. A gross pension contribution reduces the figure tested against the £100,000 threshold.
This means that if your income is within the taper band, making a gross pension contribution reduces adjusted net income — and can reduce or eliminate the taper effect.
Illustrative numbers. Someone with adjusted net income of £125,140 has no Personal Allowance. A gross pension contribution of £25,140 would reduce adjusted net income to exactly £100,000, restoring the full £12,570 Personal Allowance. The restored allowance at 40% represents £5,028 of additional tax relief.
This is a statement of how the tax rules work mechanically. Whether a pension contribution is the right course of action in any particular situation depends on many factors, including cash flow, other allowances, and the broader financial picture. This article does not express a view on what you should do.
These projections are for modelling purposes only. They do not constitute financial advice. Tax rules are subject to change and the figures used are based on 2026/27 rates. Please consult a qualified financial adviser before making financial decisions.