The £100k tax trap: why take-home pay changes above £100,000
Once adjusted net income exceeds £100,000, the standard Personal Allowance starts to disappear. This creates one of the most misunderstood parts of the UK Income Tax system.
How the allowance taper works
The standard Personal Allowance is £12,570. Above £100,000 of adjusted net income, £1 of allowance is removed for every £2 of extra income. By £125,140 the allowance is zero.
You are £10,000 above the taper point, so £5,000 of Personal Allowance is lost. The remaining allowance is £7,570.
Where the 60% effective rate comes from
In the taper range, an extra £2 can be taxed at 40% and can also remove £1 of tax-free allowance, causing another £1 to become taxable at 40%. That is £1.20 of Income Tax on £2 of additional income: an effective 60% Income Tax rate on that slice. Employee NI and other deductions are separate.
Salary sacrifice can change adjusted net income
Some pension salary-sacrifice arrangements reduce contractual cash salary and therefore taxable employment income. That can affect adjusted net income and potentially restore some Personal Allowance. This depends on the actual pension arrangement and other income, so Netly Pay treats salary sacrifice as an illustration rather than personal advice.
Check your full position
Bonuses, benefits, savings, dividends, pension contributions and Gift Aid can all affect adjusted net income. For high-income planning, check HMRC guidance or obtain professional advice rather than relying only on a salary calculator.
Worked comparison: £100,000 versus £110,000
At £100,000, the standard Personal Allowance can still be £12,570. At £110,000 of adjusted net income, £5,000 of that allowance is lost because the allowance falls by £1 for every £2 above £100,000. The extra £10,000 therefore creates £15,000 of additional taxable income compared with the £100,000 position. At a 40% Income Tax rate, that mechanism explains the commonly described 60% effective Income Tax rate across this range, before NI or other deductions.
The Personal Allowance test uses adjusted net income, not simply the salary printed on your contract. Pension arrangements and some other reliefs can affect adjusted net income, so use this page as an explanation rather than personalised tax planning.
Do not optimise from a calculator alone
Salary sacrifice can affect pension contributions, statutory payments, mortgage affordability evidence and employment benefits as well as tax. If you are making a significant pension or remuneration decision, check your scheme rules and consider professional advice.