Could you fall into the 60 percent tax trap like more pensioners have?

According to recent statistics, frozen thresholds are forcing more senior employees to pay income tax at rates significantly higher than the headline rate

We examine the reasons behind and strategies for avoiding the 60 percent tax trap.

According to new data, nearly 80,000 pensioners were subject to an effective tax rate of 60% last year due to a quirk in the earnings system; this is more than twice as many as they were just three years prior.

Although the UK's top tax rate is 45 percent, the way the tax system is set up, some high earners may actually pay as much as 60 percent. Because of frozen tax thresholds, older workers who are at the peak of their earning potential are more frequently caught in the 60 percent tax trap.

In 2024 - 2025, 77,000 British citizens over the age of 66 who were at state pension age were caught in the so-called 60 percent tax trap, which affects people with incomes between £100,000 and £123,140.

According to an investment platform Interactive Investor's Freedom of Information Request to HMRC, this is more than twice as many pensioners as were in this income tax bracket three years prior, up from just 34,000 in 2021 - 2022.

Every year since 2022, the number of pensioners paying 60 percent income tax has risen by double digits.

In the tax year that ended in April 2024, it increased by 55 percent, and in the tax year that ended in April 2025, it increased by 13 percent (compared to the prior year). It rose by 12 percent in the tax year that ended in April 2022 and 16 percent in the tax year that ended in April 2023.

"More people, including high earners at the height of their careers, are working well into their late 60s," said Craig Rickman, pensions expert at Interactive Investor. They want to continue consulting or operating a business well into their golden years because they frequently enjoy their jobs and the ongoing sense of purpose they provide.

However, there's a chance that elderly talent will be lost due to extremely high tax rates. As taxes take a bigger bite out of the cherry, many older high earners will consider whether it would be better to cut back on their income rather than risk having to deal with such a high tax burden.

The 60 percent tax trap: what is it?

The situation where people who make over £100,000 effectively pay 60% tax on a portion of their income is referred to as the "60% tax trap," or "100k tax trap."

This is because, once income surpasses £100,000, the 12,570 tax-free personal allowance is gradually taken away. People forfeit one of their personal allowances for every two hundred thousand dollars earned. Accordingly, the tax-free personal allowance completely vanishes when income reaches £125,140. A real-life tax rate of 60% is the result.

A higher earner, for instance, might see a pay increase from £100,000 to £110,000. Along with losing 5,000 of their personal allowance, which is likewise taxed at 40% on an additional 2,000, they pay 40% income tax on £10,000. They pay 6,000 in income tax overall on the 10,000 over £100,000. 60 percent as the tax rate.

People who make more than 125,140 pay 60% tax on their earnings between £100,000 and 125,140, but since they have already used up their entire personal allowance, they will only pay 45% tax on their higher earnings.

The impact of budgetary constraints.

Since it was first implemented in April 2010, the threshold for discontinuing the personal allowance has obstinately remained at 100,000 for over 15 years. As a result of fiscal drag, where income tax thresholds have not increased to reflect wage inflation, more people are falling into the 60 percent tax trap. Beginning in April 2021 and continuing until April 2028, income tax thresholds will be frozen.

60% of the increase in the full new state pension, which is scheduled to rise from 573 per year to 12,547 starting in April 2026, will be absorbed by taxes for thousands of pensioners who are still employed under the triple lock mechanism.

"This data reveals the punishing impact of the 60 percent tax trap on older workers, as more pensioners' incomes reach six-figure territory due to frozen tax thresholds," Rickman said.

Workers could now make £155,000 before paying 60% income tax if the tax-trap threshold had increased in line with inflation. Thousands more people over the state pension age will be subject to harsh tax rates on a portion of their income due to the government's deep freeze on income tax bands, which is expected to last until 2028/29.

Data obtained by Interactive Investor through a Freedom of Information request to HMRC.

How to avoid falling into the 60 percent tax trap.

Pension contributions are the only surefire method to avoid falling into the 60 percent trap. Pension contributions have the potential to lower your adjusted net income, which is the metric used by HMRC to determine your tax liability.

Contributions to a pension that lower your income below £100,000 can result in a 40% income tax deduction and allow you to retain your personal tax-free allowance, according to Rickman.

Simply remember to include the pension contribution on your tax return if it is going into a private pension, such as a self-invested personal pension (Sipp), also called a pension pot for life, since you only get the basic-rate relief of 20% up front.

People over 55 who have already taken a taxable and flexible pension withdrawal. E. be mindful of the money purchase annual allowance (MPAA), though, if they have taken more than their tax-free cash.

Rickman noted that "the MPAA lowers the maximum amount you can put into pensions every year and get upfront tax relief from 60,000 to just 10,000."

Additionally, you will no longer be able to access any unused annual pension allowances from the preceding three tax years through carryover relief.