The 60% Tax Trap: Why a Pay Rise Can Barely Reach Your Bank
There is no 60% band on any HMRC rate table, and yet a band of income really is taxed at roughly 60%. It happens because your tax-free Personal Allowance is withdrawn once your income passes a threshold — you lose a pound of allowance for every two pounds you earn above it. Each extra pound is therefore taxed twice over: once directly, and once by dragging a previously tax-free pound into tax. The effect stops as suddenly as it starts, once the allowance is fully gone.
Enter your salary in the take-home pay calculator to see whether you are inside the trap, and what it is costing you on your next £100.Why the Rate Is 60% When No 60% Band Exists
Work through a single extra pound. You pay higher-rate tax on the pound itself. But that pound also removes half a pound of Personal Allowance, and that half-pound — previously untaxed — is now taxed at the higher rate too. Add the direct charge to the knock-on charge and the marginal rate lands near 60%, well above the headline rate printed on the rate table. This is why the trap catches people by surprise: they check the band they are in, see the headline rate, and budget for that. The payslip disagrees. Nothing has gone wrong; the rate table simply does not describe what happens to the next pound, only to the pound you already earned.
Who Falls Into It — Including People Who Do Not Think They Have
The trap is set by your adjusted net income, not by your contractual salary, and that distinction catches people out. A bonus can push you in for one year only. So can rental profit, dividends from a side company, or a one-off gain that lands in the wrong tax year. Two people on identical salaries can be in completely different positions because one has a buy-to-let and the other does not. It is also possible to be inside the trap for part of a year and outside it for the rest, which is why an annual calculation and a monthly payslip can tell different stories — and why the number that matters for planning is the marginal rate on your next pound, not the average rate across the year.
The One Lever That Actually Works: Pension Contributions
Because the trap is triggered by adjusted net income, reducing that figure removes it. A pension contribution does exactly that, and it is unusual among tax planning moves in that the money stays yours — it moves into your pension rather than to HMRC. Inside the trap the effective relief is roughly double the headline higher rate, which makes the pound you divert unusually efficient. Two cautions. First, the arrangement your employer uses changes how and when the relief arrives, and one of the three common arrangements requires you to claim part of it yourself — see the pension relief guide. Second, salary sacrifice cannot reduce your pay below the National Minimum Wage, so there is a floor on how much you can divert.
What Not to Do About It
Refusing a pay rise to stay under the threshold is almost always wrong. The high marginal rate applies only to the slice inside the band, not to your whole income — you never end up with less money by earning more. Once you are through the far side of the band, the marginal rate drops back down again. The trap is a stretch of expensive road, not a cliff. The genuine decisions it should inform are narrower: whether to take a bonus this tax year or next, whether to increase pension contributions before the year end, and whether an extra piece of freelance work is worth doing at the rate you would actually keep.