UK tax calculator: workers hit by 60% HMRC income and take home salary 'tax trap' in 2025 - how to avoid it
Many UK workers could lose thousands 💸
- Nearly 700,000 UK workers are now caught in the £100,000 tax trap, facing up to 60% effective tax
- The trap hits those earning between £100,000 and £125,000, caused by the loss of personal allowance and childcare benefits
- New HMRC figures show 74,000 more people joined this bracket in 2024/25, nearly doubling in five years
- Experts say careful planning - like pension contributions, salary sacrifice, or Gift Aid - can reduce the impact
- And a new £100k tax trap calculator helps workers see how much they could lose and explore strategies to protect their income
A growing number of UK workers are falling into what financial experts are calling a “tax trap,” with nearly 700,000 now facing an effective 60% tax rate.
The £100,000 trap, as it is known, hits those earning between £100,000 and £125,000, and is taking an increasingly heavy bite out of their pay packets.
New figures obtained from HMRC via a City AM Freedom of Information request revealed that 74,000 additional taxpayers joined this bracket during the 2024/25 tax year.
That’s a 12% rise on last year and almost double the number affected just five years ago. Here is everything you need to know about the trap, and the steps you can take to reduce its financial impact on you.
What is a marginal tax rate?
The £100,000 trap applies to people earning between £100,000 and £125,000 a year, and it’s all to do with marginal tax rates.
A marginal tax rate is the rate of tax you pay on your next pound of income, not your total income.
For example, in the UK, if your income is within a bracket taxed at 20%, your marginal rate is 20%. That means every extra pound you earn in that bracket is taxed at 20%.
If your income rises into the 40% bracket, your marginal rate on the additional income above that threshold becomes 40%, even though the earlier part of your income is still taxed at 20%.
What is the £100,000 ‘tax trap’?
Once your income hits £100,000 in the UK, two things kick in that can reduce your take-home pay.
If you earn over £100,000, your tax-free allowance (the amount up to which you don’t pay income tax) starts to shrink. For every £2 above £100,000 you earn, you lose £1 of your allowance, which can push your effective marginal tax rate up to 60%.
But parents also face the removal of access to free childcare hours or subsidies once they earn over £100,000.
The combined effect of losing the personal allowance and childcare benefits means the marginal tax rate can effectively reach 60% or more, and can see some families losing up to £9,000 in a single year.
Under these circumstances, it’s also possible for a parent earning £101,000 to end up financially worse off than someone earning £99,000 - which is why financial experts call it a “trap.”
A new tool to navigate the trap
To help those affected, a new £100,000 tax trap calculator has been developed by Antonia Medlicott (pictured), Founder and MD of Stonehouse-based Investing Insiders.
It allows taxpayers to estimate how much they might lose and explore strategies to reduce the financial impact.
Medlicott says: “The calculator is designed to answer key questions: is a pay rise actually worth it, and how can you limit potential losses?”
How to reduce the impact
With nearly 700,000 people now affected, the £100,000 tax trap is no longer a niche issue for the wealthy, and is becoming more of a problem for middle- to upper-middle-income households, particularly those with children.
But experts say there are ways workers can reduce the impact of the £100,000 tax trap if they plan carefully.
Putting more money into a pension, using salary sacrifice (agreeing to give up some pay in exchange for benefits like pension contributions or childcare), or making charitable donations through Gift Aid can lower your taxable income so it stays under £100,000.
Timing bonuses carefully and using any unused pension allowances from previous years can also help.
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