What Is the £100k Tax Trap? (UK 2025/26)

The £100k tax trap is one of the most misunderstood quirks in the UK tax system. It kicks in the moment your adjusted net income crosses £100,000, and it can mean you take home significantly less from each extra pound earned than someone on a much lower salary.

How It Works

Every UK taxpayer gets a personal allowance — £12,570 for 2025/26 — which is the amount of income you can earn without paying any income tax. However, once your adjusted net income exceeds £100,000, HMRC starts clawing that allowance back at a rate of £1 for every £2 you earn above the threshold.

This means someone earning £112,570 has lost half their personal allowance (£6,285). By the time income reaches £125,140, the personal allowance has been completely withdrawn to zero. On paper, you are paying 40% higher-rate tax on this band of income, but because you are simultaneously losing your tax-free allowance, the real rate you pay is 60%.

Why It Matters

The trap does not just affect income tax. Crossing £100,000 also disqualifies you from the 30 hours free childcare scheme and Tax-Free Childcare, both of which use the same £100,000 adjusted net income threshold. For parents, the combined effect of losing tax relief and childcare support can mean a £2,000 pay rise costs the family over £27,000 in lost benefits and extra tax.

How to Avoid It

The most common strategy is to increase pension contributions. Because pension contributions (whether personal or via salary sacrifice) reduce your adjusted net income, contributing enough to bring your income back below £100,000 can restore your full personal allowance, free childcare entitlement, and Tax-Free Childcare eligibility — while also boosting your retirement savings.

Gift Aid donations also reduce adjusted net income and can serve a similar purpose.