Stealth Tax Calculator, 2026/27

How this is calculated

This calculator compares total tax due on your income before and after a pay rise or bonus, and expresses the difference as a percentage of that extra income, which is your true marginal rate rather than the headline tax band rate. Because thresholds are frozen rather than rising with inflation or wage growth, more of a typical rise now falls into a higher band than would have been the case with thresholds that moved each year.

The most striking example is between £100,000 and £125,140, where the personal allowance itself withdraws at £1 for every £2 earned. Combined with the 40% higher rate, this produces an effective 60% marginal rate on income in that band, even though no such rate appears on any published tax table.

Above £125,140 the personal allowance has been fully withdrawn and the headline 45% additional rate applies, which after the 60% zone can actually feel like a reduction in marginal rate, even though the total tax bill keeps rising.

Why frozen thresholds matter

Fiscal drag happens when tax thresholds are held flat while wages and prices rise, so a growing share of income moves into higher bands purely through inflation rather than any change in real spending power. Directors and employees receiving inflation-linked pay rises can find their tax bill increasing faster than their actual buying power.

This affects business owners setting salary and dividend levels too, since the same frozen thresholds apply to the personal allowance used against salary, meaning the point at which dividends start being taxed at higher rates has not moved either.

Planning around the 60% zone

Pension contributions are the most common way to manage the 60% zone, since an employer or personal pension contribution can bring adjusted net income back under £100,000, restoring the full personal allowance and avoiding the taper entirely for that portion of income.

Salary sacrifice arrangements, Gift Aid donations and timing of bonus payments across tax years are other tools directors and senior employees use to manage exactly where their income falls relative to these frozen thresholds.

What is fiscal drag?

Fiscal drag is the effect of tax thresholds being frozen while incomes rise with inflation or pay awards, meaning more income is pulled into higher tax bands each year without any change to the published tax rates.

Why is the marginal rate between £100,000 and £125,140 effectively 60%?

In that band the personal allowance is withdrawn at £1 for every £2 earned, so an extra pound of income is taxed at 40% and also causes 50p less allowance to be available, taxed at a further 20%, producing a combined 60% effective rate.

Does this affect dividend income too?

Yes, the same personal allowance taper applies to total income including dividends, so a director drawing dividends that push adjusted net income above £100,000 faces the same effective 60% zone on that slice of income.

How can I avoid the 60% tax trap?

A pension contribution or Gift Aid donation that reduces adjusted net income below £100,000 restores the full personal allowance, which is the most direct way to step out of the taper zone.