UK income tax has three headline rates — 20%, 40%, 45% — and most people assume their marginal rate (the tax on the next pound earned) matches whichever band they're in. Between £100,000 and £125,140, that assumption is wrong. The effective marginal rate in this specific band is 60%, and it catches a lot of people by surprise, including some who've been earning in this range for years without realizing exactly why.
Where the extra 20% comes from
It isn't a separate tax band — there's no official "60% rate" published anywhere. It's a side effect of how the Personal Allowance works. Everyone normally gets a tax-free Personal Allowance on the first slice of income. Once income passes £100,000, that allowance starts shrinking — by £1 for every £2 earned above the threshold — until it disappears completely at £125,140.
So between those two points, every extra pound earned does two things at once: it gets taxed at the normal 40% higher rate, and it simultaneously shrinks your tax-free allowance, which pulls another slice of income that used to be tax-free into the 40% band too. Combine both effects and the real cost of an extra £100 earned in this band is £60 in tax — an effective 60% marginal rate.
A concrete example
Someone earning exactly £100,000 keeps their full £12,570 Personal Allowance. Someone earning £110,000 has lost half of it — down to roughly £7,570 — meaning an extra £5,000 of income that used to be tax-free is now taxed at 40%, on top of the 40% already due on the £10,000 pay rise itself. That's the compounding effect that produces the 60% figure.
Why this band catches people off guard
A pay rise that pushes someone from, say, £95,000 to £105,000 can feel like it barely moved the needle on take-home pay, in a way that a similarly sized rise lower down the income scale wouldn't. It's not a calculation error or an unfair deduction — it's the mechanical result of the allowance taper — but it's rarely explained clearly, so it often just looks like tax eating the whole raise without an obvious reason why.
What people in this band often do about it
The most common approach is increasing pension contributions specifically to bring taxable income back under £100,000 — since pension contributions (via salary sacrifice or relief at source) reduce the income figure used for the taper calculation. This doesn't reduce your total pay, only how much of it is taken as immediate salary versus pension savings, but it can meaningfully reduce the tax paid in this specific band. It's worth running the actual numbers rather than assuming — the right contribution level depends entirely on where your income sits relative to the £100,000 and £125,140 thresholds.
This isn't a decision to make from a rule of thumb — it depends on your specific income, existing pension arrangements, and what you can actually afford to divert from take-home pay. A financial adviser who can see your full picture is the right person to confirm whether this makes sense for you.
This article is general information, not personal financial or tax advice. Rates and thresholds shown are for the UK 2026/27 tax year and may change — always check gov.uk or mygov.scot for the current figures, or speak to a qualified adviser before making a real decision.
