Key facts
- The UK's 60% tax trap affects income earned between £100,000 and £125,140.
- The trap is caused by the tapering of the personal allowance for incomes above £100,000.
- HMRC forecasts over 2 million people will be caught in the trap by the 2026/27 tax year.
- The Labour government has confirmed income tax threshold freezes will continue until at least April 2031.
Millions of UK high earners are set to be caught in a 60% tax trap, a situation exacerbated by frozen income tax thresholds, according to HMRC forecasts. The trap, also known as the £100k tax trap, affects individuals earning between £100,000 and £125,140, where their personal tax-free allowance begins to reduce. This reduction effectively creates a higher marginal tax rate on a portion of their income.
HMRC predicts that over 2 million people will fall into this tax bracket in the 2026/27 tax year, marking the highest number on record. The number of individuals earning over £100,000 has nearly doubled in the past five years, indicating that this is no longer a niche issue but one impacting a broader range of professionals, business owners, and senior employees.
The effective tax rate within this band can reach up to 60%, and when National Insurance contributions are included, it can climb to 62%. This occurs because for every £2 earned above £100,000, £1 of the personal allowance is lost. The personal allowance is fully eroded at £125,140, after which the standard additional rate of 45% applies. The Labour government has confirmed that the freeze on income tax thresholds and allowances, initially set by the Conservative government, will continue until at least April 2031, further contributing to more Britons being pulled into higher tax bands.