• February 29, 2024
 The 60% Tax Trap: Who’s at risk and how to avoid it

The 60% Tax Trap: Who’s at risk and how to avoid it

The tax system here in the UK can be, well, taxing. What should be a case of simple mathematics can often become clouded when things like personal allowances and tapers come into play. And nobody appreciates the complexities quite like a financial advisor trying to explain it all to their clients.

Technically, there is no such thing as paying 60% tax on earnings. The official HMRC income tax brackets are between 0-45% depending on your rate of income. But dig a little deeper and you may find your higher-earning clients are at risk of falling into the 60% Tax Trap.

What is the 60% Tax Trap?

Although not an officially recognised income tax bracket, the 60% tax trap is a result of the tapering of personal allowances. It affects those clients whose annual earnings are between £100,000 and £125,140.

In simple terms, those with an income of over £100,000 are subject to a decrease of the £12,570 personal allowance – the amount a person can earn before having to pay income tax. And this has knock-on effect when it comes to the sum total that’s lost by higher-earners during the income tax process.

The maths is as follows:

Personal allowance is currently tapered at a rate of £1 for every £2 clients earn above £100,000. This means that, for every £100 of income earned between £100,000 and £125, 140, those higher-earning clients see just £40 of it. That’s because while £40 goes towards paying their income tax, another £20 is swallowed up by the tapering of their personal allowance.

In effect, this results in a 60% rate of income tax for those earning between £100,000 and £125,140. And for those clients with an income of over £125,140, there’s no personal allowance granted at all.

High-earning clients particularly at risk of falling, unknowingly, into the 60% tax trap are those who receive bonuses towards the end of the tax year, potentially taking them above the £100,000 threshold.

How can high-earners avoid the 60% tax trap?

The best way for higher-earning clients to ensure they don’t fall foul of the 60% tax trap is to reduce the amount of taxable income they earn within a single tax year. Increasing pension contributions before tax-year end is an ideal solution. Not only will this take those clients earning over £100,000 below the personal allowance tapering threshold, it also means that instead of losing funds to the income tax process they will be topping up their retirement fund while making the most of their pension tax relief.

The maximum a person can pay into their pension each tax year is £40,000 while still benefitting from tax relief on those contributions.

The takeaway

  • The 60% tax trap is the result of the tapering of personal allowances for those earning over £100,000
  • Clients earning between £100,000 and £125,140 are most at risk of falling into the 60% tax trap
  • High-earners who receive bonuses towards the end of the tax year that take them over the £100,000 threshold are also at risk
  • Increasing pension contributions can help high-earners avoid the 60% tax trap

If you have high-earning clients who fall into the £100,000 – £125,140 income tax bracket, contact CTT Private Client for the best up-to-date information on tax relief and advice.

This article was submitted to be published by CTT Group as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.

CTT Group


  CTT Group is an established Legal Services firm providing multi-disciplinary support for the UK’s Professional Adviser community. Their expertise spans multiple areas of Law, Estate Planning, Finance and Tax matters. CTT Group is recognised as a leading figure in the industry due to their wealth of experience and technical knowledge in the legal and financial sectors. CTT Group is made up of six areas: CTT Professional Services: A specialised knowledge hub designed for the Professional Adviser community and CTT Group members. The Professional Services team will provide you with a bespoke training and support package to suit any business. This includes the New entrants team, Training, Estate Planning Team, Professional Indemnity Insurance Service & the Resource Hub. CTT Tax and Trust: a premium support system for the Professional Adviser community, providing professional executor and Trustee services. They specialise in Estate Planning, Tax and Trust matters and have a wealth of knowledge and experience in delivering the right solutions for your clients. CTT Legacy Software: Ground-breaking legal software that will change how you work. Legacy was explicitly designed with you and your business in mind, so it will seamlessly align with your needs. It can also be tailored to suit your business needs, giving you complete control over your client journey. CTT Legal: Providing innovative and modern solutions to even the most complex legal problems. CTT Legal offer comprehensive Legal advice alongside CTT Law; an SRA-regulated law firm and strategic partner of CTT Group. This includes Residential and Commercial Conveyancing, Litigation, Document production, Client care, Professional Executor & Professional Executor. CTT Accountancy: A newly established Accountancy firm that will work in partnership with you and your business. CTT Accountancy is a practice of highly skilled and experienced accountants with expertise in trust matters, uniquely positioned to offer your clients a range of accounting services, whatever their needs. CTT Private Client: Offering individual professional advice to high-net-worth individuals with various financial situations. Their specialist team have a wealth of knowledge and will work with you to understand your requirements and provide bespoke advice. Click here for more information: https://ctt-group.co.uk/ Contact: CTT Group Tel: 01926 514 390 Email: enquiries@ctt-group.co.uk Address: CTT Group, Gables House 62 Kenilworth road Leamington Spa CV32 6JX