Nick Bone, Financial Advisor of Greenwood Mortgages provides us with this guest blog, looking at the 60% tax trap and what higher earners need to know.

Earning over £100,000 may feel like a financial milestone, but it can trigger an unexpectedly high tax bill. If your income falls between £100,000 and £125,140, you could face an effective marginal tax rate of 60% — often referred to as the “60% tax trap”.

How you can fall into the tax trap

This occurs because the personal allowance (£12,570) is gradually withdrawn once income exceeds £100,000. For every £2 earned above this level, £1 of the allowance is lost. As a result, income in this range is taxed at 40%, while the loss of the allowance adds a further 20%, before National Insurance is considered.

More people are being caught by this trap as income tax thresholds have been frozen since 2021 and are set to remain so until at least April 2031. With wages continuing to rise, proactive planning is increasingly important.

How to avoid the tax trap

One of the most effective ways to avoid the 60% tax trap is to increase pension contributions. Pension payments reduce your adjusted net income, potentially keeping it below £100,000. This can preserve your personal allowance while also boosting your retirement savings and benefiting from tax relief at your highest marginal rate. Unused pension allowances from the previous three tax years may also be available to use.

Charitable giving can provide similar benefits. Gift Aid donations reduce adjusted net income and can be used alone or alongside pension contributions to manage taxable income more effectively.

Salary sacrifice arrangements may also help. By exchanging part of your salary for non-cash benefits — such as pension contributions or certain workplace benefits — you may reduce both income tax and National Insurance.

For families with young children, keeping income below £100,000 can unlock valuable childcare benefits, including tax-free childcare and eligibility for funded childcare hours.

Financial planning is key

With careful planning, it may be possible to reduce your tax bill, protect family benefits and improve long-term financial outcomes.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Nick is an experienced financial advisor, with over 18 years of experience. Nick can assist in mortgage applications, financial planning and family wealth planning. Contact Nick here.

Nicholas Bone Financial is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website http://www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. Nicholas Bone Financial is a trading name of Greenwood Mortgages Ltd.

Jameson and Partners is here to help you with your property matters, from assisting with sales to managing your rentals. Our trusted team has an excellent knowledge of the local Altrincham, Hale and Bowdon areas. For honest, impartial and realistic advice, contact us today – 0161 941 4445.