Over 1.9 million UK workers are projected to face a 60% tax rate on income above £100,000 in 2026, as frozen tax thresholds have created a financial trap for many, financial experts warn. The situation is expected to worsen as the number of people affected is set to exceed 2 million by 2027.

Impact on Tax Brackets and Income

New figures reveal that 1.18 million individuals will lose their entire £12,570 tax-free personal allowance in the 2025-26 tax year, up from 1.09 million in the previous year. Another 752,000 will lose part of their allowance, an increase from 682,000 in 2024-25. The tax system’s structure means that for every £2 earned above £100,000, £1 of the tax-free allowance is removed.

This results in an effective tax rate of 60% for individuals earning between £100,000 and £125,140, plus 2% national insurance. As a result, workers in this bracket are left with only £38 of every £100 earned after taxes. The Office for Budget Responsibility has warned that the number of taxpayers in higher or additional rate bands could rise from 15% in 2021-22 to 24% by 2030-31.

Escaping the 60% Tax Trap

Chartered financial planner Sean McCann of NFU Mutual has advised workers to consider pension contributions as a way to mitigate the impact of the tax trap. Contributions made by April 5 can restore some or all of the tax-free allowance for the current tax year, he said.

“It’s the ambition of many to reach an income of £100,000, but it comes with an unexpected sting in the tail,” McCann said. “Making pension contributions can restore some or all of your tax-free allowance.”

For example, someone earning £125,140 who sacrifices £25,140 of their salary into a pension would pay just £9,554 out of pocket while saving £15,084 in income tax and £502 in national insurance. Employers also benefit from reduced national insurance contributions.

McCann also highlighted the benefits of charitable giving. He noted that gifts to charity via Gift Aid reduce taxable income and can restore some or all of the tax-free allowance. “For every £100 you give, the charity gets an extra £25,” he said.

What’s Next for Tax Policy

With tax thresholds frozen until 2031, the government has not announced any immediate changes to the current system. This has left many taxpayers in a precarious position, as the financial burden of the 60% tax rate continues to grow. The Office for Budget Responsibility has warned that the issue will only worsen, predicting a significant increase in the number of taxpayers affected by higher tax rates.

Experts suggest that individuals should act now to mitigate the impact of the tax trap, either through pension contributions or charitable donations. The long-term implications of the frozen tax thresholds remain uncertain, but the growing number of affected taxpayers indicates a need for urgent policy review.

The 60% tax rate trap is not a new phenomenon, but its impact has intensified in recent years as inflation and wage growth have outpaced tax threshold adjustments. Similar issues have been reported in previous years, with growing numbers of workers pushed into higher tax brackets despite modest income increases.