£100k Salary: Avoid the Tax Trap with Pension Sacrifice
At exactly £100k, you're on the edge of the 60% tax trap. Here's how pension contributions can protect your income.
Understanding This Scenario
At £100,000, you're at the threshold of the UK's most punishing tax zone. For every £2 you earn above this point, you lose £1 of your personal allowance (£12,570). Combined with 40% tax and 2% NI, this creates an effective 60% tax rate on income between £100,001 and £125,140.
At exactly £100k, you still have your full personal allowance. But even a small pay rise could push you into the trap, making pension contributions a powerful tool for staying below the threshold.
Optimization Strategy
Strategy: Salary Sacrifice to Pension
If your income is just above £100k, consider contributing the excess to your pension via salary sacrifice: - Each £1 contributed avoids 60% effective tax - Your pension gets the full contribution (no tax deducted) - You also save 2% NI on the sacrificed amount
Example: If you earn £100,500, sacrificing £500 to pension saves you £300 in tax and keeps you below the trap.
Frequently Asked Questions
What is the £100k tax trap?
The £100k tax trap refers to the effective 60% tax rate you pay on income between £100,001 and £125,140. This happens because your personal allowance (£12,570) is reduced by £1 for every £2 you earn above £100k, on top of 40% income tax and 2% NI.
Does the tax trap start exactly at £100k?
Yes. Once your adjusted net income exceeds £100,000, the personal allowance taper begins. At exactly £100k, you still have your full £12,570 allowance. At £125,140, it's completely gone.
How can pension contributions help?
Pension contributions via salary sacrifice reduce your taxable income. If you earn £105k and contribute £5k to your pension, your taxable income drops to £100k, avoiding the trap entirely. Each £1 contributed saves 60p in tax.