Imagine getting a pay rise and expecting a higher take-home pay, only to realise that you’re actually worse off. It’s not a bad dream — it’s the infamous 60% tax trap. This tax anomaly catches thousands of UK taxpayers off guard, especially high earners, freelancers, and side hustlers. But with the right tools, like a 60% tax trap calculator, you can figure out exactly how much of your raise you’ll actually keep — and more importantly, how to avoid losing most of it.
In this guide, you'll learn:
What Is the 60% Tax Trap?
The 60% tax trap occurs when you earn between £100,000 and £125,140 annually. It happens because, as soon as you earn over £100,000, you start losing your Personal Allowance (£12,570). For every £2 you earn over £100,000, you lose £1 of your allowance. This effectively increases your marginal tax rate to 60% — meaning, for every extra £1 you earn, you only keep 40p.
Here’s a breakdown:
The result? Your shiny new raise could leave you with less money in your pocket than before. This is where the 60% tax trap calculator comes in handy.
How Does the 60% Tax Trap Calculator Work?
The 60% tax trap calculator helps you see the true impact of your pay rise. You input your salary, bonuses, and other earnings, and it calculates how much of your Personal Allowance you lose and how much extra tax you’ll pay.
Here’s how to use it:
Let’s look at an example:
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How to Avoid the 60% Tax Trap
Being aware of the trap is the first step, but how can you actually avoid it? Here are some smart strategies:
1. Make Pension Contributions
If your income is close to or just above the £100,000 threshold, you can contribute to a pension. Contributions are "grossed up" by 20%, which reduces your taxable income and brings you back below the threshold. Not only do you avoid the trap, but you also boost your retirement savings.
2. Charitable Donations
Donating to charity through Gift Aid allows you to claim tax relief. The donation reduces your taxable income, which could bring you back under the £100,000 limit.
3. Salary Sacrifice Schemes
If your employer offers a salary sacrifice scheme for benefits like electric cars or childcare, you can reduce your taxable income, potentially avoiding the trap.
4. Timing of Bonuses
If you’re expecting a bonus that will push you over £100,000, see if your employer can delay it until the following tax year.
By using the 60% tax trap calculator, you can see how much of a difference each of these strategies makes.
Other Calculators You Should Know About
If you’re self-employed, work multiple jobs, or are planning to leave the UK, you might also find yourself dealing with other tax calculations. Here’s how they relate to the 60% tax trap:
1. Side Hustle Tax Calculator UK
If you have a side hustle on top of your main job, you need to calculate how much extra tax you owe. A side hustle tax calculator UK helps you figure out how much your freelance or part-time work will affect your overall tax liability.
If your side hustle tips you over the £100,000 mark, you could trigger the 60% tax trap. To avoid it, you may want to use salary sacrifice or pension contributions to stay under the limit.
2. Leaving the UK Tax Refund Calculator
If you plan to leave the UK, you may be entitled to a tax refund. This is especially relevant if you worked only part of the tax year. A leaving the UK tax refund calculator helps you estimate how much of your overpaid tax you can claim back.
If you’ve paid too much because of the 60% tax trap, you may be entitled to claim a refund when you leave. However, this can depend on the timing of your departure and the portion of the tax year you were a UK resident.
3. Residency Tests
If you’re considering a move abroad, you’ll need to understand residency tests to determine if you’re still considered a UK resident for tax purposes. If you remain a resident, you may still be liable for UK taxes on worldwide income, including capital gains.
Residency tests are important if you plan to leave the UK while earning income from UK sources. If you’re a non-resident, you might avoid the 60% tax trap, but you’ll need to ensure you pass the Statutory Residence Test (SRT).
How the 60% Tax Trap, Side Hustles, and Residency Tests Are Connected
If you’ve ever picked up a side hustle or moved abroad, you’ve likely faced one of the following questions:
These issues are all connected. For example, if your side hustle takes you from £98,000 to £102,000 in total earnings, you’ll enter the 60% trap. If you plan to leave the UK, knowing how to calculate your refund using a leaving the UK tax refund calculator is essential to reclaim any overpaid taxes.
If you’re unsure of your residency status, the residency tests help you establish your tax obligations. Passing the Statutory Residence Test (SRT) can mean the difference between paying full UK taxes or paying none at all.
Key Takeaways
Using these tools and strategies can save you thousands of pounds. Don’t get caught off guard — understand the trap, plan ahead, and make informed financial decisions.
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A guide to claiming back Income Tax
It is not uncommon to overpay income tax, and this guide will help you get it back.
HMRC use this information to calculate the exact amount of tax you should have paid, and often will refund any overpayment automatically.
Once you do receive it, check it carefully as sometimes HMRC don’t have all the information and may have missed something.
Claiming on-line If you haven’t received a P800, but suspect that you may have overpaid your tax, and you are registered with HMRC on-line, you can make your claim HERE.
You can also claim back for previous years’ overpaid tax.
