UK's 60% Hidden Tax Rate, Eek!
- shauncrozier9
- Jun 2
- 2 min read
Ever get a raise or bonus that feels underwhelming once it hits your bank account?
If your income has crossed £100,000 and your payslip seems suspiciously light, it’s not your imagination—or a payroll glitch. It’s a stealth penalty baked into the UK tax system, quietly draining up to 60% of every extra pound you earn over that threshold.
Over five years, that can mean losing £30,000 or more to a tax rule most people don’t even know exists.
Here’s how it works, how to spot it, and how Klarity Tax helps higher earners hold onto more of what they’ve earned.
The Hidden Tax Band No One Warns You About
You won’t see it on official tax tables or flagged by payroll software, but if your income sits between £100,000 and £125,140, you're effectively in the UK’s most punishing tax zone.
Here’s how it works:
Once your income exceeds £100,000, your allowance (£12,570) starts tapering off, reduced by £1 for every £2 earned above that threshold. This taper, combined with the 40% Higher Rate Tax, results in a shocking 60% effective marginal tax rate across this income band.
For every additional £1,000 earned, £600 is lost to tax, making this slice of income more costly than the Additional Rate Tax charged above £125,140.
Bonus Shock: What Really Happens
You receive a £5,000 bonus, nudging your income from £100,000 to £105,000. What’s the real impact?
£2,000 paid in Higher Rate Tax
£2,500 of your allowance is lost
That lost allowance triggers another £1,000 in tax
Net result? You keep just £2,000—less than half of what you earned!
And this doesn’t only apply to salary but dividends, pension drawdowns, rental income—any taxable source can trigger the trap. Many don’t realise it’s happened until take-home pay shrinks or an unexpected tax bill lands on the door mat!
Who’s Most at Risk?
This trap hits hardest when income is variable, performance-based, or arrives in lump sums. You might be especially vulnerable if:
You work in finance, sales, tech, or other bonus-heavy sectors
You’re a UK expat returning home, unfamiliar with taper rules
You use flexible pension drawdowns
You’re a company director drawing dividends
We’ve seen clients lose £3,000 from a single bonus or over £15,000 over five years—money that could have gone toward a pension, school fees, or even a property deposit.
Some Smart Ways to Protect Your Income
This isn’t about loopholes—it’s about legal, strategic tax planning that keeps more of your money working for you.
Pension Contributions
Salary Sacrifice
Income Timing
Gift Aid Donations
Don’t Let It Compound
Three years in the 60% zone could quietly cost you £18,000. If you earn across borders, currencies, or regimes, inefficiencies stack even higher.
Helping High Earners See the Full Picture
We specialise in helping high earners navigate bonuses, global moves, and complex income streams. We work with you to plan deliberately and strategically to save tax and the same time fully comply with HMRC.
If your income is approaching or already inside the taper zone, now is the time to act.
