3 surprising pitfalls you could face if your earnings hit £100,000

Earning upwards of £100,000 can feel like a dream come true. Whether it’s by progressing your career over the years or building a successful, profitable business, it can be exhilarating to see your income hit six figures.

However, while it’s definitely a cause for celebration, there are some financial considerations you’ll need to make once you go beyond the £100,000 income mark.

Higher rates of tax, combined with losing certain allowances and benefits, can come as a shock if you’re unprepared

Here, we’ve highlighted three of the main disadvantages associated with a high salary, and, crucially, what you can do about them.

1. The 60% Income Tax trap

Once your income exceeds £100,000, you might expect to attract a higher rate of taxation.

In the 2025/26 tax year:

• The 40% higher-rate tax band applies to income between £50,271 and £125,140
• The 45% additional-rate tax band applies to income above £125,140.

This means you’ll already be in the higher- or additional-rate band once your income hits six figures.

However, there’s a specific issue, often known as the “60% tax trap”, which will impact your earnings if they sit between £100,000 and £125,140.

This is because of the way your Personal Allowance – the amount you can earn before paying any Income Tax – works. In 2025/26, this is £12,570.

But when your adjusted net income (your total taxable income less certain deductions) exceeds £100,000, you start to lose your Personal Allowance. It falls by £1 for every £2 you earn over £100,000.

This can result in an effective 60% tax rate, because:

• You’re paying 80p Income Tax on the £2 (the higher rate of 40%)
• You’re paying 40p Income Tax on the £1 lost Personal Allowance (the basic rate of 20%)
• This equates to 60%.

Once your income reaches £125,140, you lose your Personal Allowance altogether, which removes the double taxation and simply tips you into the additional-rate band.

This means that while earning more is always welcome, this tax trap can really dent your pay increase.

2. Losing free childcare hours

If you have children and either parent earns over £100,000, you’ll lose your access to paid-for childcare places.

This is set at 30 hours for all under-fives, over 38 weeks each year, for working parents earning the national minimum wage.

3. No more tax-free childcare

If you pay into a childcare account, you’ll receive £2 of tax relief for each £8 you add.

But, as soon as you earn over £100,000, you’ll no longer be eligible for this entitlement.

How to avoid these adverse consequences

Realising that earning a six-figure salary could see you impacted in these ways can be a bitter pill to swallow.

However, one way to mitigate these negative effects is to pay more into your pension. This could take your adjusted net income below the £100,000 threshold.

You may then be able to restore your access to your Personal Allowance and childcare entitlements if you meet the criteria.

Get in touch

If you think your earnings are likely to reach or exceed £100,000, talk to us about how we can help you navigate these potential pitfalls.

Email us at info@andersonfinancialltd.com or call us on 020 8943 0065.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate tax planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.