The £100,000 tax trap
Above £100,000 your tax-free allowance shrinks by £1 for every £2 you earn, so each extra pound loses 60p to income tax and 2p to National Insurance. That line has not moved since 2010, and the 45% rate now starts at . Enter a salary to see how the frozen thresholds treat it, and what an inflation-linked allowance would change.
On every extra £1 you earn, income tax and National Insurance take
| Item | Frozen | Indexed | Difference |
|---|---|---|---|
| Allowance left | |||
| Income tax | |||
| National Insurance | Same | ||
| Take-home pay | |||
| Tax on next £1 |
How much of each extra £1 you lose
The rate on each extra pound jumps to 62% at £100,000. That is 40% income tax, plus 20% because every £2 you earn also removes £1 of tax-free allowance, plus 2% National Insurance.
Income tax and National Insurance on each extra £1, by salary before tax
Show the numbers as a table
| Salary from | Frozen rate | Indexed rate |
|---|
- The £100,000 line
- £100,000 since 2010, never raised
- Where 45% starts
- since April 2023£150,000 before
- How wide the 60% zone is
- frozen indexed
If your pay only kept up with prices
Because the £100,000 line stands still, a salary that rises exactly with prices drifts towards it and then through it. Each row shows what a salary from 2021 becomes today if it did no more than keep pace.
| Paid in 2021 | Same buying power today | Allowance left today | Tax and NI on the next £1 |
|---|
How the £100,000 tax trap works
Your personal allowance is the first £12,570 of income you can earn without paying income tax. Once your income goes over £100,000, it shrinks by £1 for every £2 above that line. At £125,140 it has gone completely. The £100,000 line has not changed since April 2010.
Each extra £1 of pay in that zone costs you 40p of income tax on the pound itself, plus another 20p because you also lose 50p of allowance that would have been tax free. That is an effective income tax rate of 60%. With 2% employee National Insurance it is 62p in every £1.
Above £125,140 the rate falls back to 47% including National Insurance, because the allowance has already gone and the 45% rate applies. If the allowance had risen with inflation, the zone would run to £132,160 instead, and there would be a stretch costing 69.5p in every £1 where the 45% rate has started but the allowance is still being withdrawn.
Common questions
Why does each extra £1 cost 62p between £100,000 and £125,140?
Your personal allowance falls by £1 for every £2 of income above £100,000. Each extra £1 of pay therefore takes away 50p of tax-free allowance, which costs 20p in tax at the 40% rate. Add the 40p of tax on the pound itself and you pay 60p in income tax. Employee National Insurance of 2% brings the total to 62p.
At what income is the personal allowance lost completely?
At £125,140 on the current frozen rules. The £12,570 allowance falls by £1 for every £2 over £100,000, so £25,140 above the line removes all of it.
How can I avoid the £100,000 tax trap?
Lower your adjusted net income to £100,000 or less. Pension contributions, Gift Aid donations and salary sacrifice can all do this. The adjusted net income calculator shows what each route costs you.
Does earning over £100,000 affect childcare?
Yes. Tax-Free Childcare and the 30 funded hours of childcare in England both require each parent to have adjusted net income of £100,000 or less. Over the line, a family can lose the funded hours and the Tax-Free Childcare top-up. The adjusted net income calculator estimates the amount.
Has the £100,000 limit gone up with inflation?
No. It has stayed at £100,000 since April 2010. Pay keeps rising while the limit stands still, so more people reach it each year.