Why UK earners over £100,000 face a 60% marginal rate

Every UK taxpayer starts with a personal allowance — a slice of income, £12,570 for 2025-26, taxed at 0%. Above £100,000 of adjusted net income, that allowance does not simply stay flat: it is withdrawn at a rate of £1 of allowance for every £2 of income over the threshold.

The withdrawal is what produces the trap. Income in this band is taxed at the normal 40% higher rate, but each extra £2 earned also costs £1 of allowance, which is itself then taxed at 40% — so the true cost of that £2 is 40% of it directly, plus 40% of the £1 that just became taxable. Work through the arithmetic and the effective marginal rate on the whole £100,000–£125,140 band comes out at 60%, well above the headline 45% additional rate that applies far above it.

The allowance reaches zero at £125,140 — £100,000 plus twice £12,570 — and from that point the marginal rate drops back to the ordinary 40% (45% once the additional-rate threshold is passed). The band is therefore narrow (£25,140 wide) but disproportionately expensive, which is why pension contributions or salary sacrifice that pull adjusted net income back under £100,000 are the standard response: every pound moved out of the band is worth 60p in this range, more than at any other point in the UK income-tax schedule.