60% Tax Trap Calculator, 2026/27

How this is calculated

Everyone starts with a personal allowance of £12,570, tax-free income before any income tax is charged. Once total income passes £100,000, HMRC withdraws that allowance at a rate of £1 for every £2 earned above the threshold, so by the time income reaches £125,140 the allowance has fallen to nil.

Within that band, every extra £100 earned is taxed at 40% higher rate on the £100 itself, and also causes £50 of previously tax-free allowance to become taxable at 40%, adding a further £20 of tax. £40 plus £20 is £60 out of £100, an effective 60% marginal rate, even though the headline higher rate is only 40%.

The calculator applies this mechanically: it works out your personal allowance at your current income, then recalculates it after any pension contribution you enter, since pension contributions reduce the income used for the taper test.

Why this catches so many directors and senior employees

Company directors who pay themselves a mix of salary and dividends, or employees who receive a bonus that tips them over £100,000, often do not realise the taper exists until their tax code changes or their self-assessment bill arrives noticeably higher than expected.

Because the trap is invisible on a payslip, most people only see it when they complete a tax return and compare the tax charged against their headline rate band. Timing a bonus, dividend or asset sale to fall either side of the £100,000 to £125,140 window can make a material difference.

Ways to reduce the impact

A gross pension contribution reduces adjusted net income for the taper test pound for pound, so contributing enough to bring income back under £100,000 restores the full personal allowance as well as attracting pension tax relief, effectively giving up to 60% relief on the contribution.

Salary sacrifice into a pension, charitable donations under Gift Aid, and deferring income such as a dividend into a later tax year are the main legitimate levers directors and contractors use to manage this band.

Why is it called the 60% tax trap?

Because between £100,000 and £125,140 you pay 40% higher-rate tax on the income itself and lose personal allowance at the same time, which combine to an effective marginal rate of around 60% on that band of income.

Does the trap apply to dividend income?

Yes. Total income for the personal allowance taper includes salary, dividends, rental income and most other taxable income, so dividends pushing you over £100,000 are caught in exactly the same way as salary.

Can pension contributions fix this?

A sufficient gross pension contribution reduces your adjusted net income, which can restore some or all of the personal allowance and reduce the effective marginal rate, alongside the normal tax relief on the contribution itself.

Is the £100,000 threshold going up for 2026/27?

No. The threshold has been frozen for several years and there is no announced increase for 2026/27, which means more people drift into the taper each year as pay rises with inflation.