UK's £100k tax trap to drag 2.5m more into 60% rate by 2031

For investors, financial planners, and high-earning professionals, the £100,000 threshold is a structural obstacle that turns a £10,000 bonus into a complex tax event. Every £2 of adjusted net income above £100,000 removes £1 of personal allowance, producing a 60% marginal rate until £125,140 — and that's before lost benefits and allowances. With the freeze set to run through 2031, modelling pension salary sacrifice and bonus deferral is now a core wealth-management task.

The UK's £100,000 tax trap is set to become a defining issue for upper-middle earners over the next five years after the Labour Government confirmed in the 2025 Autumn Budget that the tax-free personal allowance will remain at £12,570 until 2031. The trap is not a formal tax band but a taper: for every £2 of adjusted net income above £100,000, a taxpayer loses £1 of personal allowance. By £125,140, the entire allowance has been withdrawn. For a taxpayer already paying 40 per cent higher-rate income tax on that slice, the loss of allowance creates an effective marginal rate of 60 per cent on income between £100,000 and £125,140. That is before National Insurance, lost tax-free childcare, the personal savings allowance, or other means-tested benefits, meaning the true marginal cost of earning in that band can be even higher.

“

Every £2 of adjusted net income above £100,000 removes £1 of personal allowance, producing a 60% marginal rate until £125,140 — and that's before lost benefits and allowances.

The threshold has been frozen since 2010. Michael Healy, chief executive of IG Consumer, told Sky News that the threshold is becoming increasingly detached from reality, noting it has been frozen since Gordon Brown was Prime Minister. IG Consumer calculates that had the threshold risen with inflation, it would now stand at about £160,000 and reach roughly £174,000 by 2031. The result is fiscal drag: as wages grow, more middle-to-higher earners are pulled into the taper without any legislative tax increase. IG Consumer estimates an extra 2.5 million Britons could be inside the trap by the beginning of the next decade if the freeze is not reversed.

The freeze has already generated about £29 billion for the Exchequer, according to IG Consumer, and that figure could climb above £52 billion by 2031. A Treasury spokesperson defended the policy: "We are protecting payslips by keeping our promise not to raise income tax, national insurance or VAT. The personal allowance is reduced for those with incomes over £100,000 to ensure support is focused where it's most needed, including funding public services." This framing matters: the Government is not increasing headline rates, but it is allowing inflation to do the work through frozen thresholds—an economically substantial but politically quieter source of revenue.

The planning implications are acute. A worker on £110,000 who makes a £10,000 gross pension contribution can lower adjusted net income back under the £100,000 threshold, restoring the full personal allowance and avoiding the 60 per cent marginal zone. In practice, that pension contribution can attract tax relief of 60 per cent on the relevant slice, which makes pension funding unusually attractive for those earning between £100,000 and £125,140 — provided there is sufficient annual allowance and no tapering issues. Donations to charity under Gift Aid, salary-sacrifice arrangements, and timing bonus payments can also manage adjusted net income. For employers, salary sacrifice and bonus deferral are likely to become more prominent as the freeze persists.