Hundreds of thousands more taxpayers to be pulled into £100k ‘tax trap’ by 2029

Hundreds of thousands of Brits are set to be dragged into an effective 60% tax trap over the next four years, according to new figures.

Almost 2.3 million taxpayers will earn over £100,000 by 2028/29, based on Freedom of Information (FOI) data obtained from the HMRC by wealth and asset management firm Rathbones, leaving them exposed to the tax trap.

The top rate of income tax in England, Wales and Northern Ireland is 45%. However, the tax-free personal allowance gradually reduces once you earn over £100,000. You lose it completely if you earn £125,140 or more.

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This means, if you earn between £100,000 and £125,140, you effectively pay an income tax rate of 60%.

HMRC estimates 1.8 million taxpayers earned above the £100,000 threshold in 2024/25, but this is expected to rise by 493,000 to 2.29 million by 2028/29.

Not only does breaching £100,000 in earnings lead to an effective 60% rate of tax on income between £100,000 and £125,140, it means families can lose out on vital childcare support worth tens of thousands of pounds.

Stephanie Ebner, a financial planning lead at Rathbones, said the £100k tax trap had increasingly become a “stealth tax on the middle class”.

“The £100,000 tax trap is one of the most baffling quirks in our tax system,” she added.

“Originally designed to target the very highest earners, after 15 years of inflation and frozen thresholds, it now ensnares thousands of professionals who were never meant to be caught.”

For parents with two children under five, earning just £1 over £100,000 can mean losing childcare support worth almost £20,000, Rathbones warns.

All entitlement to tax-free childcare and free childcare hours is lost once parents earn more than £100,000 a year.

Stephanie said: “These costs must be covered from post-tax income, so it’s no surprise many are concerned.

“Hard-working families would need a substantial pay rise just to offset the impact of this tax trap.”

Source: HMRC via Freedom of Information request November 2025. Figures for the 2023-24 to 2028-29 tax years are estimates.

What is the £100k tax trap?

The £100k tax trap, also known as the 60% tax trap, is where taxpayers earning between £100,000 and £125,140 pay an effective income tax rate of 60%.

This is because your personal allowance, worth £12,570, is tapered off until eventually you have none left. This means being hit with extra tax on top of the 40% marginal rate.

The allowance tapers down at a rate of £1 for every £2 worth of income earned above £100,000.

For example, if your income rose to £110,000 from £100,000 you would pay 40% income tax on the additional £10,000 over £100,000. This works out at £4,000 in tax.

You would also lose £5,000 of your personal allowance (50% of £10,000) which is taxed at 40%. This equates to £2,000 in tax.

It means you pay £6,000 (60%) tax on the £10,000 earned over £100,000.

You pay the 45% additional rate of income tax on anything earned over £125,140.

Fiscal drag pulls more taxpayers into the 60% tax trap

The £100,000 threshold for losing the personal allowance has been frozen since its introduction in April 2010. Income tax thresholds have also stayed the same since April 2021 and remain frozen until April 2028.

But with taxpayers seeing their incomes increase due to rising wages and inflation, more and more people are being pulled into higher tax thresholds – a phenomenon known as fiscal drag.

The number of people losing some or all of their personal allowance due to fiscal drag is projected to rise by 88% between 2021/22 and 2028/29, from 1.22 million to 2.29 million, according to HMRC estimates.

Can you avoid the 60% tax trap?

Put simply, yes. You could give up a portion of your salary, if you’re still working, and add it into a workplace pension, thereby reducing your annual pay.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Check if your employer operates a salary sacrifice scheme, where you give up a portion of your salary, and spend it on certain things free of tax – including pensions. You can use this to bring your salary down below the £100,000 threshold.

“If your employer doesn’t run a salary sacrifice scheme, or the Budget brings in changes that make it harder to take advantage, you can still pay into a self-invested personal pension (SIPP) and receive tax relief at your highest marginal rate.”

Coles highlighted how someone on £101,000 paying £1,000 into a pension would benefit from £400 tax relief and an extra £200 boost as their personal allowance wouldn’t start being tapered down, meaning a £1,000 contribution would only actually cost them £400.

She added: “Plus, if a parent can bring their income back under £100,000, they may keep their eligibility to tax-free childcare too.

“If you’re making income from savings interest, you can use a cash ISA to protect as much as possible from tax.”

That said, there have been speculations the chancellor Rachel Reeves could introduce a £2,000 cap on the amount of earnings that can be exchanged through salary sacrifice in the Autumn Budget, signalling bad news for those trying to avoid the £100k tax trap.