Most people expect a pay rise to make them better off, and almost always it does. But there is one stretch of income in the UK where the tax system takes far more than the headline rates suggest. Between £100,000 and £125,140, an employee in England, Wales or Northern Ireland keeps just 38p of every extra pound. For parents of young children, crossing £100,000 by even £1 can also switch off thousands of pounds of childcare support.
This guide explains where the trap comes from, what it costs in real pounds for 2026/27, and the legal, common ways to step back out of it. Every figure here comes from the same engine as our Salary & Take-Home Pay Calculator, so you can check your own numbers there.
Where the trap comes from
Everyone starts with a tax-free Personal Allowance of £12,570. Once your adjusted net income goes above £100,000, that allowance is reduced by £1 for every £2 of income over the line. By £125,140 it has gone completely.
So each extra £2 you earn in this band does two things. It is taxed at the 40% higher rate, and it removes £1 of allowance, which means another £1 of your income that used to be tax-free is now taxed at 40% too. Put together:
- Income Tax on the £2 itself: 80p (40%).
- Income Tax on the £1 of lost allowance: 40p.
- Total: £1.20 of tax on £2, an effective rate of 60%.
Add 2% employee National Insurance and the marginal rate on salary is 62%. Above £125,140 the allowance is already gone, so the rate falls back to the 45% additional rate plus 2% NI: 47%. That is the odd shape of the UK system: the marginal rate between £100,000 and £125,140 is higher than the rate above it.
What it costs in real pounds
Here is a salary of £100,000, £110,000 and £125,140 in 2026/27, with no pension or student loan:
| Salary | Personal Allowance | Income Tax | National Insurance | Take-home |
|---|---|---|---|---|
| £100,000 | £12,570 | £27,432 | £4,010.60 | £68,557.40 |
| £110,000 | £7,570 | £33,432 | £4,210.60 | £72,357.40 |
| £125,140 | £0 | £42,516 | £4,513.40 | £78,110.60 |
A £10,000 rise from £100,000 to £110,000 adds just £3,800 to take-home pay. Going all the way to £125,140, a rise of £25,140, adds £9,553.20. You can see the band-by-band picture for any salary in the Tax Bracket Checker.
In Scotland the trap is steeper still. The Personal Allowance taper is the same, but the income it pulls into tax meets the 45% advanced rate, so the marginal rate on salary is 69.5% including NI. A Scottish taxpayer going from £100,000 to £110,000 keeps £3,050 of the £10,000. The Scottish Income Tax calculator shows the full picture.
The childcare cliff for parents
The tax taper is gradual. The childcare rules are not. Two valuable schemes use the same £100,000 adjusted net income test, and each one is all or nothing:
- Funded childcare hours for working parentsin England: up to 30 hours a week, 38 weeks a year (1,140 hours) for children from 9 months until they start school. If either parent’s adjusted net income is expected to be over £100,000, the family loses the working-parent hours. The universal 15 hours for 3 and 4-year-olds stay. Check eligibility with the free childcare hours calculator.
- Tax-Free Childcare: the government adds £2 for every £8 you pay into a childcare account, up to £2,000 a year per child (£4,000 for a disabled child). Same £100,000 limit, for either parent. See the Tax-Free Childcare calculator.
With two young children in nursery, going £1 over the line can cost more in lost support than the whole of a modest pay rise. Child Benefit is a separate matter: the High Income Child Benefit Charge claws it back between £60,000 and £80,000, so by £100,000 it has already gone in full (worth £2,337.40 a year for two children in 2026/27). The High Income Child Benefit calculator covers that earlier band.
The fix: reduce your adjusted net income
Every rule above is tested on adjusted net income, not on your salary. Adjusted net income is your total taxable income less certain deductions, mainly pension contributions and Gift Aid donations. So the same tool fixes all three problems at once: put the excess into a pension.
Take someone on £110,000 who pays an extra £10,000 into their pension through salary sacrifice. Their pay for tax falls to £100,000, they get their full Personal Allowance back, and their take-home falls by only £3,800. In other words, £10,000 lands in the pension at a cost of £3,800: an effective 62% boost, before any employer top-up. If their adjusted net income is now £100,000 or less, the childcare support comes back too.
The method of paying in changes the mechanics, but not much the outcome:
| Method | How it works | Cost of £10,000 into the pension at £110,000 |
|---|---|---|
| Salary sacrifice | You give up salary; your employer pays it in. Saves tax and NI. | £3,800 |
| Net pay arrangement | Paid from your gross pay before tax. Saves tax, not NI. | £4,000 |
| Relief at source | You pay £8,000; the provider adds £2,000. You claim the other £4,000 back through Self Assessment. | £4,000 (after the claim) |
With relief at source, the claim matters: if you don’t file a tax return or ask HMRC, you miss the higher-rate relief and the Personal Allowance stays reduced. Many people in this band are owed money for this reason. The pension tax relief calculator works out each method for your salary.
Bonuses, timing and other ways in
The trap often catches people through a one-off. A bonus, a big overtime month, savings interest or dividends all count towards adjusted net income for the tax year. A few points worth knowing:
- Bonus sacrifice. Many employers let you sacrifice part or all of a bonus into your pension. It must be agreed before the bonus is paid. Our bonus tax calculator shows what a bonus is worth with and without it.
- It is a tax-year test.Income from 6 April to 5 April counts. A contribution made in March reduces that year’s figure; one made in May counts towards the next.
- Gift Aid. Donations to charity reduce adjusted net income by the grossed-up amount. A £800 donation counts as £1,000.
- Savings and dividends count. Interest above your Personal Savings Allowance and dividends still add to adjusted net income, even if some are tax-free. Moving savings into an ISA keeps them out of the calculation.
Limits and things to watch
- The annual allowance.You can normally get tax relief on pension savings of up to £60,000 a year (including your employer’s contributions), or 100% of your earnings if less. Unused allowance from the three previous years can be carried forward.
- Pension money is locked away.You can’t normally draw it until 55 (57 from April 2028). If you need the cash for a house deposit or school fees, this strategy has a real cost.
- Salary sacrifice lowers your contractual pay. That can affect mortgage applications, life cover and statutory pay such as maternity pay. Check with your employer first.
- Changes from April 2029. The government plans to cap the NI saving on salary sacrifice pension contributions at £2,000 a year. Income Tax relief is unaffected, so the trap fix still works; the extra NI saving shrinks for large sacrifices.
A simple checklist
- Estimate your adjusted net income for the whole tax year, including bonuses, interest and dividends.
- If it is between £100,000 and £125,140, work out how much you would need to pay into a pension to get back to £100,000.
- If you have young children in childcare, treat £100,000 as a hard line for each parent.
- If you use relief at source, make sure you claim the extra relief through Self Assessment.
- Run the numbers in the workplace pension calculator before changing your contribution.
The bottom line
The £100,000 trap is not a reason to turn down a pay rise: you are always better off in cash terms, just by much less than you would expect. But for anyone in this band, every pound paid into a pension is unusually cheap, and for parents of young children, staying at or under £100,000 can be worth thousands. These figures are estimates for 2026/27 and general guidance, not personal financial advice.