By Paul Chappell

15th October 2025

The hidden 60% tax band – the uk’s stealth tax on £100k+ earners

If you’re earning over £100,000 in the UK, you might be surprised to discover you’re facing an effective tax rate of 60% on a portion of your income. This isn’t an official tax band you’ll find on HMRC’s website, but it’s very real for thousands of middle and high earners across the country.

What is the 60% tax band?

The 60% tax band isn’t actually a tax band at all. It’s the result of how the personal allowance is withdrawn for those earning over £100,000.

Here’s how it works:

For the 2025/26 tax year, everyone receives a personal allowance of £12,570, meaning the first £12,570 of income is tax-free.
However, for every £2 you earn over £100,000, you lose £1 of your personal allowance.
This continues until your income reaches £125,140, at which point your personal allowance disappears entirely.

The mathematics behind the pain

Let’s break down why this creates a 60% effective tax rate:

When you earn an additional £1 between £100,000 and £125,140, two things happen:

You pay 40% tax on that £1 (the higher rate)
You lose 50p of your personal allowance, which gets taxed at 40%

So the calculation looks like this:

Direct tax on £1 earned = 40p
Lost personal allowance = 50p (which would have been tax-free)
Tax on that lost 50p allowance = 20p (50p × 40%)
Total tax = 60p per £1 earned = 60%

Who does this affect?

This quirk of the tax system impacts a significant and growing number of people:

Middle managers and senior professionals
Experienced doctors, lawyers, and accountants
Small business owners with fluctuating incomes
People receiving one-off bonuses that push them over the threshold

The frozen tax thresholds mean more people are being dragged into this bracket through wage inflation and career progression, even without real increases in purchasing power.

The real-world impact

The consequences of this stealth tax band are far-reaching:

Take-home pay shock

Many people are surprised to discover that a £10,000 pay rise from £95,000 to £105,000 only nets them around £4,000 after tax and National Insurance.

Bonus disappointment

A £20,000 bonus for someone earning £100,000 could result in a net gain of just £8,000, with £12,000 going to the taxman.

Marginal thinking

Some employees negotiate to defer income, turn down overtime, or request non-cash benefits to avoid this band entirely

Strategic responses

If you’re caught in this trap, there are legitimate ways to reduce the impact:

Pension contributions

Making contributions to your pension reduces your adjusted net income. A £10,000 pension contribution for a higher-rate taxpayer effectively costs £6,000 after tax relief, but saves £6,000 in tax on income in the 60% band.

Salary sacrifice arrangements

Exchanging salary for benefits like additional pension contributions, cycle-to-work schemes, or an electric car can keep you below the threshold.

Gift Aid donations

Charitable donations extend your basic rate band, providing tax relief that can help restore some of your personal allowance.

Income timing

If you’re self-employed or have control over income timing, spreading income across tax years can help avoid the threshold.

The policy debate

This effective 60% rate has drawn criticism from across the political spectrum.

Critics argue:

It creates a bizarre marginal tax rate higher than that paid by millionaires (who pay 45% on income over £125,140)
It adds unnecessary complexity to the tax system
It distorts behaviour and creates perverse incentives
It unfairly targets successful middle-class professionals

Defenders suggest:

It targets those who can afford to pay more
It raises significant revenue without creating a new official tax band
The affected group is relatively small and well-paid

Looking ahead

With tax thresholds frozen until 2028 (although we can expect this to be extended in the November 2025 Budget), fiscal drag will push more
earners into this band each year. Unless policymakers address this anomaly, the 60% effective tax rate will affect an ever-growing
proportion of the workforce.

Whether you see this as a necessary contribution from higher earners or an unfair penalty on aspiration and hard work likely depends on your perspective. What’s undeniable is that it represents a significant and often unexpected tax burden on those navigating the £100,000 to £125,140 income range.

If you’re approaching or in this income bracket, understanding how this hidden tax band works can help you make informed decisions about salary, bonuses, and pension contributions. With proper planning, you can minimise the impact of what is effectively Britain’s highest marginal tax rate.

Author

Paul Chappell

Paul started his career at the Inland Revenue, now HMRC, where he spent 14 years as a Tax Inspector, Employer Compliance & VAT Manager and PAYE Auditor. It gave him an inside view of how HMRC thinks and what it looks for when it comes knocking.

He then spent 11 years at a regional accountancy practice, advising clients on tax and guiding them through HMRC investigations from the other side of the table.

From there, it was a natural step into payroll. Paul took on a Compliance and Legislation role at an award-winning payroll provider, where he made sure processes were watertight and payroll teams were fully trained on every change.

After a short break, he was tempted back and joined Ascend as Head of Legislation and Compliance in November 2024.

Paul's focus is on keeping Ascend and its clients on the right side of the rules. He tracks new legislation as it lands, turns it into clear guidance for the team and writes many of Ascend's plain-English articles and guides.

For Paul, good compliance is about getting ahead of change.

"Employment law and payroll legislation are changing faster than I've seen in my whole career. The businesses that cope best are the ones that prepare early, long before a new rule becomes a deadline.
My job is to take the complicated stuff and make it simple, so our team and our clients know exactly what's changing, what it means for them and what they need to do about it."

That's the approach he brings to every update: spot what's coming, explain it clearly and make sure no client is caught out.

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Paul is Ascend's Head of Legislation and Compliance, with over 30 years of experience in tax and payroll, including a decade as a HMRC Tax Inspector. He leads on compliance, keeping the team and clients up to speed with the latest and future changes. When our clients have a specific challenge or complex query, Paul is the man to sort it out.

everything PAYE, tax, National Insurance, pensions, keeping Ascend's team and clients one step ahead of every legislative change.

Frequently asked questions related to this blog

What is the 60% tax band and how does it work?

It is not an official tax band on HMRC’s website, but it is very real for thousands of earners. For the 2025/26 tax year, everyone receives a personal allowance of £12,570, meaning the first £12,570 of income is tax-free. However, for every £2 you earn over £100,000, you lose £1 of your personal allowance. This continues until your income reaches £125,140, at which point your personal allowance disappears entirely. The result is an effective 60% tax rate on income between £100,000 and £125,140.

Why does earning between £100,000 and £125,140 create a 60% effective tax rate?

When you earn an additional £1 in this range, two things happen. You pay 40% tax on that £1 at the higher rate. And you lose 50p of your personal allowance, which would otherwise have been tax-free but is now taxed at 40%, adding another 20p. That gives you 60p of tax on every £1 earned, or 60%. This is higher than the 45% rate paid by millionaires on income over £125,140, which is why it catches so many people by surprise.

Who is affected by the 60% tax trap?

Middle managers and senior professionals, experienced doctors, lawyers, and accountants, small business owners with fluctuating incomes, and anyone receiving a one-off bonus that pushes them over the threshold. With tax thresholds frozen until 2028, more people are being dragged into this bracket through wage inflation and career progression, even without real increases in purchasing power. A £10,000 pay rise from £95,000 to £105,000 might only net around £4,000 after tax and National Insurance. A £20,000 bonus for someone earning £100,000 could result in a net gain of just £8,000.

What can employees do to reduce the impact of the 60% tax band?

Pension contributions reduce your adjusted net income. A £10,000 pension contribution for a higher-rate taxpayer effectively costs £6,000 after tax relief but saves £6,000 in tax on income in the 60% band. Salary sacrifice arrangements for additional pension contributions, cycle-to-work schemes, or an electric car can keep you below the threshold. Gift Aid donations extend your basic rate band and can help restore some of your personal allowance. If you are self-employed or have control over income timing, spreading income across tax years can also help avoid the threshold.

Will more people be caught by the 60% tax band in future?

With tax thresholds frozen until 2028, fiscal drag will push more earners into this band each year. Unless policymakers address the anomaly, the 60% effective tax rate will affect an ever-growing proportion of the workforce. Some employees already negotiate to defer income, turn down overtime, or request non-cash benefits to avoid the band entirely. If you are approaching or in this income bracket, understanding how the hidden tax band works can help you make informed decisions about salary, bonuses, and pension contributions. With proper planning, you can minimise the impact of what is effectively Britain’s highest marginal tax rate.

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About the Author

Paul is Ascend’s Head of Legislation and Compliance, with over 30 years of experience in tax and payroll, including a decade as a HMRC Tax Inspector. He leads on compliance, keeping the team and clients up to speed with the latest and future changes. When our clients have a specific challenge or complex query, Paul is the man to sort it out. everything PAYE, tax, National Insurance, pensions, keeping Ascend’s team and clients one step ahead of every legislative change.

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