Why thousands of Brits are quietly paying more tax than millionaires
A peculiar quirk in the UK tax code means that thousands of high earners are effectively handing over a bigger slice of their next pound of income to HMRC than millionaires earning far more.
A new analysis by consulting firm S&W shows that this is because of the so-called 60% tax trap, created by the stealthy withdrawal of the personal allowance for those earning between £100,000 and £125,140.
While the headline top rate of income tax is 45% for additional-rate taxpayers, people caught in this narrow band face a punishing effective marginal rate of 60% on income in that range.
How the trap works
The personal allowance, the amount you can earn tax-free, currently stands at £12,570. It starts to shrink once your adjusted net income exceeds £100,000, falling by £1 for every £2 earned above that level. By the time you hit £125,140, it’s wiped out entirely.
Here’s the maths:
- For every extra £2 of income above £100,000, you lose £1 of tax-free allowance;
- You pay the 40% higher-rate tax on that full £2 (£0.80);
- You also pay 40% tax on the newly taxable £1 of lost allowance (£0.40);
- The total tax on £2 is £1.20, a 60% effective marginal rate.
Once you clear £125,140, the rate drops back to the official additional rate of 45%. A millionaire earning £300,000 or £3 million therefore pays a lower marginal rate on their top slice of income than someone on £110,000, S&W said.
This doesn’t just apply to income tax. Crossing £100,000 can also wipe out your personal savings allowance and dividend allowance, while triggering the High Income Child Benefit Charge for families.
HMRC data obtained via freedom-of-information requests shows the problem is exploding because of fiscal drag, frozen tax bands pulling more people into higher brackets.
Nearly 2 million taxpayers are projected to earn above £100,000 in 2026/27, up from 1.22 million in 2021/22. Hundreds of thousands are already squarely in the £100k–£125k taper zone, with numbers rising fast.
What you should do before 5 April
With just days left in the 2025/26 tax year, there are still straightforward, legitimate ways to reduce taxable income and escape the trap. S&W’s pre-5 April checklist includes:
1. Pension contributions
Contributions get relief at your marginal rate – potentially 60% for those in the trap. You can carry forward unused annual allowance from the previous three years. For high earners, this is often the single most efficient move, as it also lowers adjusted net income and can restore part of the personal allowance.
2. Gift Aid donations
Higher- and additional-rate taxpayers can claim extra relief on charitable gifts. Giving shares or property can also crystallise capital gains tax relief and income tax relief on the market value.
3. Use your ISA allowance
The £20,000 annual limit is use-it-or-lose-it. With the cash ISA sub-limit due to drop to £12,000 from April 2027, now is the time to shelter growth and income tax-free.
4. Spousal income splitting
Transfer assets between spouses or civil partners to make full use of lower tax bands, the £5,000 starting rate for savings, and the full personal savings allowance.
5. Capital gains planning
Realise gains (or losses) to use the £3,000 annual exempt amount. Married couples can each use their exemption, effectively doubling it.
6. Inheritance tax gifting
Use the £3,000 annual gift allowance and make potentially exempt transfers. Review business or agricultural assets before April 2026 changes to reliefs.
Why the trap is only getting worse
Chancellor Rachel Reeves froze income tax thresholds until April 2028 in the Autumn 2025 Budget. With wages rising even modestly, fiscal drag will drag hundreds of thousands more into the £100,000+ zone over the next few years.
The result is a growing cohort of “quiet millionaires-in-waiting” who are paying more tax on the margin than actual millionaires – all while the super-wealthy often structure income through lower-taxed dividends, capital gains or offshore vehicles.
