The Personal Allowance taper — the 60% trap

Why has nobody told me about this?

The standard explanation of UK tax bands stops at 20%, 40%, 45%. The taper isn’t a published rate — it’s an effect created by the Personal Allowance being withdrawn above £100,000. HMRC documents it but doesn’t headline it. Most salary calculators ignore it entirely.

The result is that people who cross £100,000 — through a pay rise, a vest, or a bonus — are often genuinely surprised at how little arrives in their bank account. It’s not a bug in your payroll. It’s a band that exists in the rules but rarely in the conversation.

What is actually happening?

Four facts:

• The Personal Allowance is £12,570 — the amount you can earn tax-free each year.
• Above £100,000 of adjusted income, that allowance is withdrawn by £1 for every £2 earned.“Adjusted income” for this purpose is your taxable income after pension salary sacrifice and Gift Aid donations.
• It disappears entirely at £125,140. Above that point, you have no personal allowance at all.
• The withdrawn allowance becomes taxable at 40%. Combined with the 40% income tax you already pay on income in that band, the effective marginal rate is 60%.

Where does 60% come from, exactly?

For every £2 you earn above £100,000:

• 40p in income tax on that £2 (40%).
• 40p in income tax on the £1 of personal allowance you just lost (40% of £1).
• Total tax: 80p out of £2 — effectively £1.20 of tax on every £2 of earnings, which is 60%.

That’s before anything else. Add 2% employee NI (at this income level you’re well above the NI upper earnings limit, so the rate is 2% rather than 8%), and the marginal rate becomes 62%. Add student loan repayments — 9% on Plan 2 or 6% on the postgraduate plan — and the marginal rate climbs further. For a Plan 2 borrower with a postgraduate loan, the marginal rate on income in this band is 77%.

What does this look like with real numbers?

Two versions of the same person — same gross salary, different pension choices:

With 8% pension sacrifice:£8,400 goes into pension before tax. The salary HMRC sees is £96,600 — below £100,000. The taper doesn’t apply. You keep the full personal allowance and pay no 60% income tax.

With 0% pension sacrifice:the salary HMRC sees is £105,000. £5,000 of income is now inside the taper zone, between £100,000 and £105,000. Here’s what happens to that £5,000:

The choice between 8% pension sacrifice and 0% pension sacrifice, at this salary, isn’t just about whether you save for retirement. It’s about whether the top slice of your income is taxed at a normal higher rate or at a 71% effective rate. The shape of the band, not the amount of money involved, is what makes the decision so consequential.

What else can push me into this band without realising?

The taper applies to adjusted income, not just salary, which means several things can push you across the threshold even if your base pay sits comfortably below it:

• RSU vests count as employment income in the year they vest. A £95,000 salary with a £15,000 vest puts adjusted income at £110,000 — squarely in the taper.
• Sign-on and annual bonuses do the same in the year they’re paid. A one-off bonus can pull a single tax year into the band even if you’re usually below it.
• Pension salary sacrifice directly reduces adjusted income — it comes off the top of what HMRC sees, which is why it can keep you below the threshold entirely.
• Gift Aid donations also reduce adjusted income for taper purposes — the gross-up means a £100 donation reduces your adjusted income by £125.
• The taper resets each tax year.It isn’t cumulative across years — only the income inside the band in each tax year is affected.

What does this make possible?

Knowing where this band sits — and how close your total compensation gets to it — means you can evaluate threshold-crossing decisions properly. Whether to accept a pay rise that pushes you into the band, whether to increase pension sacrifice before a vest, whether the marginal value of a bonus is worth what it appears to be on paper. None of those are decisions a calculator can make for you. They’re decisions that need the right number on the table.