Four Ways £100k-plus Earners Can Cut Their Income Tax Bill - The Daily Telegraph, 9th April 2025

Jason Discusses How to Avoid the 60% Tax Trap and Other Pitfalls - with Esther Shaw for The Daily Telegraph

The original article was published on telegraph.co.uk on 9th April 2025.

As part of our mission to empower as many people as possible to make better financial decisions, we have published below all the information Jason shared with them, so you get the maximum benefit from it (not just from what was published).

THE 60% TAX TRAP

Income between £100,000 and £125,140 suffers an effective rate of income tax of 60%. This is because as well as paying the standard 40% income tax, you lose your tax-free Personal Allowance (£12,570), at a rate of £1 for every £2 of income over £100,000. This means that it is fully lost once your income exceeds £125,140.

If your income is significantly above this, there is little that you can do. However, if your income is approaching this level, is within this income bracket, or is not too far above £125,140, there is action that you can take.

INCREASE YOUR PENSION CONTRIBUTIONS

The most common solution to this is to pay more money into your pension subject to having sufficient allowance. This is because pension contributions achieve tax relief at your highest marginal rate.

Taking an example of someone with total income of £120,000 p.a. they could make a £20,000 gross pension contribution which would take their taxable income down to £100,000. Their choice is between having £20,000 in their pension or just £8,000 in their pocket. There can be a modest additional National Insurance benefit if the pension contribution is done via salary/bonus sacrifice.

TIME YOUR PENSION CONTRIBUTIONS

Another approach might be to time your pension contributions more strategically, paying in less in one year and a more in the next.

For example, someone with income of £150,000 p.a. who paid £25,000 p.a. gross into their pension would achieve a tax relief rate of just over 45%, as almost all of this pension contribution would fall into their 45% income tax band (which is on income over £125,140).

However, if that same person paid in £50,000 every other year, they would receive a 52.5% tax relief rate.

This is calculated as:

£0-£25,140 = 60% tax relief = £15,084

£25,140-£50,000 = 45% tax relief = £11,187

Total tax relief would be £26,271, giving an average rate of just over 52.5%.

A similar approach could be used for someone whose income was currently just under £100,000 but that was likely to increase above that level with their next pay rise or promotion. They might decide to delay any ad hoc pension top ups which would currently attract 40% tax relief until a later point when they might obtain a 60% rebate.

GET IN TOUCH

If you would like to discuss any questions you have around avoiding the 60% tax trap, or any other help you need to plan your own financial future, please call us for a free consultation on 020 3488 9505.

The value of your investments can go down as well as up, so you could get back less

than you invested.

Tax and Estate planning is not regulated by the Financial Conduct Authority.