The £100,000 tax trap: a plain-English guide

The short version

• The test uses your adjusted net income, not just your salary.
• Above £100,000 your £12,570 Personal Allowance goes down by £1 for every £2 of extra income, and it's gone completely at £125,140.
• That makes the effective Income Tax rate on income between £100,000 and £125,140 60% (62% for employees once 2% National Insurance is added).
• If you or your partner expect adjusted net income over £100,000, you can't get Tax-Free Childcare or the 30 hours of Free Childcare for Working Parents.
• Pension contributions, salary sacrifice and Gift Aid all lower adjusted net income, so they can take you back under £100,000.

Check your adjusted net income

Working out adjusted net income

GOV.UK sets out four steps:

1. Add up your taxable income: salary and taxable benefits, self-employed profit, rental profit, pensions, savings interest and dividends.
2. Take off pension contributions you paid with no tax relief yet, and any trading or property losses. Workplace contributions taken from your pay before tax (net pay) and salary sacrifice are already left out of your taxable pay.
3. Take off Gift Aid donations, grossed up: every £1 you gave counts as £1.25.
4. Take off personal pension contributions where the provider claims basic rate relief for you (relief at source), also grossed up: every £1 you paid counts as £1.25.

The same figure decides the High Income Child Benefit Charge (which starts at £60,000), so anything that lowers it can help with both.

Why it's an effective 60% rate

Take an employee in England on a salary of £110,000 with no other income or pension payments.

• Income over £100,000: £10,000, so the Personal Allowance falls by £5,000 to £7,570.
• Taxable income: £110,000 − £7,570 = £102,430.
• Tax: £37,700 at 20% (£7,540) + £64,730 at 40% (£25,892) = £33,432.
• On £100,000 the tax would be £27,432. So the extra £10,000 of salary costs £6,000 in Income Tax, which is 60%.

Add 2% employee National Insurance (£200) and the employee keeps just £3,800 of that £10,000. The rate drops back to 45% above £125,140, once the allowance has gone.

The childcare cliff

For parents the bigger hit can be childcare. Tax-Free Childcare tops up £2 for every £8 you pay, up to £2,000 a year per child (£4,000 if disabled). Free Childcare for Working Parents gives up to 30 hours a week for 38 weeks for children from 9 months to 4 years. You can't get either if you or your partner expect adjusted net income over £100,000 for the tax year.

There's no taper: £1 over the limit loses all of it. A parent with two children at nursery on an adjusted net income of £100,500 could lose £4,000 of Tax-Free Childcare plus the free hours. Paying just £400 into a relief-at-source pension (grossed up to £500) brings adjusted net income back to £100,000 and keeps them eligible.

To see what Tax-Free Childcare is worth for your children, and whether you and your partner pass the earnings and £100,000 tests, use the free Tax-Free Childcare calculator.

Getting back under £100,000

Relief-at-source pension. Using the £110,000 example, paying £8,000 into a personal pension means the provider adds £2,000, so £10,000 goes in. Adjusted net income falls to £100,000 and the full Personal Allowance comes back. Tax for the year drops from £33,432 to £29,432, and you claim that £4,000 back through Self Assessment or by contacting HMRC. So £10,000 goes into the pension for a real cost of about £4,000.

Salary sacrifice, if your employer offers it, swaps salary for an employer pension payment. Sacrificing £10,000 of the £110,000 saves £6,000 of Income Tax and £200 of National Insurance, so the £10,000 pension payment costs about £3,800 in take-home pay. Check how it affects things like mortgage applications and life cover based on salary.

Gift Aid donations work like relief-at-source pension payments: each £1 you give takes £1.25 off adjusted net income, and higher-rate relief is claimed on your tax return.

Pension tax relief is limited to 100% of your earnings and the annual allowance (normally £60,000, lower for very high earners or if you've flexibly accessed a pension). The free pension and adjusted net income calculator shows how much you'd need to pay in to hit a target figure.

Things people miss

• Bonuses can push you over £100,000 late in the year. Many people plan a pension payment before 5 April once they know the total.
• Side income counts. Self-employed profit, rent, savings interest and dividends all add to adjusted net income.
• Childcare is based on expected income when you reconfirm every 3 months, so keep an eye on it through the year.
• Scotland has different Income Tax bands, but the Personal Allowance taper and the £100,000 childcare limit work the same way.

Plan it in a spreadsheet

Tidy Sheets' UK Pension Contributions & Adjusted Net Income Planner logs your income, pension payments and Gift Aid, works out adjusted net income, flags the £60,000, £100,000 and £125,140 lines, and shows the payment needed to reach a target. Find it in the shop.

Visit the shop

Related: Tax-Free Childcare calculator · Child Benefit tax charge calculator · High Income Child Benefit Charge guide · tax set-aside calculator.

Official sources

Income Tax rates and Personal Allowances (GOV.UK)
Adjusted net income (GOV.UK)
Tax-Free Childcare (GOV.UK)
Free Childcare for Working Parents (GOV.UK)
Pension tax relief (GOV.UK)
National Insurance rates (GOV.UK)

Checked 16 October 2026. Figures are for 2026-27 in England, Wales and Northern Ireland unless stated.