More pensioners dragged into 60% tax trap – could you be caught?

Nearly 80,000 pensioners were caught in a quirk of the earnings system and hit with an effective tax rate of 60% last year, according to new data – more than double the figure just three years ago.

While the official top rate of tax in the UK is 45%, in practice this can jump to 60% for some high earners due to the way the tax system is set up. Older workers at the height of their earning potential are increasingly being caught in the 60% tax trap due to frozen tax thresholds.

A total of 77,000 Brits at state pension age – currently 66 years – and above were dragged into what is known as the 60% tax trap in 2024/25, affecting those with incomes of between £100,000 and £125,140.

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This is more than double the number of pensioners falling into this income tax bracket three years before, up from just 34,000 in 2021/22, according to a Freedom of Information Request to HMRC by investment platform Interactive Investor.

The number of pensioners paying 60% income tax has increased by double digits every year since 2022.

It rose by 13% (from the previous year) in the tax year ending April 2025, having surged by 55% in the tax year ending April 2024,. It increased by 16% in tax year ending April 2023 and 12% in tax year ending April 2022.

Craig Rickman, pensions expert at Interactive Investor, said: “More people now work well into their late 60s, including high earners at the peak of their careers. They often enjoy their work, and the continued sense of purpose, so want to carry on consulting or running a business until well into their golden years.

“However, there’s a risk that ultra-high tax rates could mean losing older talent. As taxes take an even bigger bite from the cherry, many older high earners will weigh up whether they’re better off stepping back and earning less, rather than risk facing such a heavy tax burden.”

What is the 60% tax trap?

The 60% tax trap, also known as the £100k tax trap, describes the situation where individuals earning over £100,000 effectively pay 60% tax on a portion of their income.

This is because the £12,570 tax-free personal allowance is gradually withdrawn once income exceeds £100,000. For every £2 earned over £100,000, individuals lose £1 of their personal allowance. On this basis the tax-free personal allowance disappears totally once income hits £125,140. The consequence is a real-life tax rate of 60%.

For example, a higher earner receives a pay rise from £100,000 to £110,000. They pay 40% income tax on £10,000 but also lose £5,000 of their personal allowance, which is also taxed at 40% – a further £2,000. In total, they pay £6,000 income tax on the £10,000 earned above £100,000. A 60% tax rate.

Individuals earning over £125,140 also pay 60% tax on their earnings between £100,000 to £125,140, but their higher earnings, over £125,140, will be taxed at a lower rate of 45% as they have already lost the whole personal allowance.

The effect of fiscal drag

The threshold for losing the personal allowance has stubbornly stuck at £100,000 for more than 15 years, since it was introduced in April 2010. Fiscal drag – where income tax thresholds have remained static rather than keeping up with wage inflation – has meant more people are being caught out by the 60% tax trap. Income tax thresholds have been frozen since April 2021 and are set to remain frozen until April 2028.

With the full new state pension set to increase £573 a year to £12,547 from April 2026, under the triple lock mechanism, thousands of pensioners who are still working will see 60% of this rise swallowed up in tax.

Rickman said: “This data reveals the punishing impact of the 60% tax trap on older workers, as frozen tax thresholds pull more pensioners’ incomes into six-figure territory.

“If the tax-trap threshold had kept pace with inflation, workers would now be able to earn £155,000 before being hit with 60% income tax. With the deep freeze on income tax bands set to endure until 2028/29, and fears the government could extend it even further, thousands more people above state pension age will be hit with punitive rates of tax on some of their income.”

Source: Data based on a Freedom of Information request to HMRC, obtained by Interactive Investor.

How to beat the 60% tax trap

Paying into pensions is the one surefire way to beat the 60% trap. This is because pension contributions can reduce what’s called your adjusted net income – the measure HMRC uses to judge how much tax you owe.

Rickman said: “Paying into a pension to bring your income below £100,000 can attract 40% income tax relief and enable you to keep your personal tax-free allowance.

“Just don’t forget to include the pension contribution on your tax return if it goes into a private pension, like a self-invested personal pension (Sipp) – also known as a pension pot for life – as you only receive the 20% basic-rate relief upfront.”

Over-55s who have already made a flexible and taxable withdrawal from their pension – i.e. have taken more than just their tax-free cash – need to watch out for the money purchase annual allowance (MPAA), however.

“The MPAA lowers the maximum amount you can put into pensions every year and get upfront tax relief from £60,000 to just £10,000,” Rickman pointed out.

“It also means you can no longer use carry forward relief that enables you to tap into unused annual pension allowances from the previous three tax years.”