How to escape the £100k tax trap with pension contributions (2026/27 guide)

If your income has crept over £100,000, congratulations — and commiserations. You have walked into one of the strangest corners of the UK tax system: a band where the effective tax rate is 60%, and where a £1 pay rise can cost a family with young children thousands of pounds in childcare support. The good news is that this is one of the most fixable problems in personal tax, and the main tool is something you probably already have: a pension.

Key takeaways

• Between £100,000 and £125,140 of adjusted net income, you lose £1 of personal allowance for every £2 of income — an effective income tax rate of 60% (62% including employee National Insurance).
• Tax-free childcare and 30 hours of funded childcare are lost entirely — a cliff edge, not a taper — the moment either parent's adjusted net income exceeds £100,000.
• The High Income Child Benefit Charge claws back Child Benefit between £60,000 and £80,000 of adjusted net income.
• Personal pension contributions and salary sacrifice both reduce adjusted net income, so they can restore your personal allowance, keep your childcare entitlements and preserve Child Benefit — all at once.
• Gift Aid donations also reduce adjusted net income and can be a useful secondary lever.
• The deadline is 5 April: contributions must be paid in the tax year to count for that year (though unused annual allowance can be carried forward from the previous three years).

What is the £100k tax trap?

The standard personal allowance — the amount you can earn before paying income tax — is £12,570, frozen at that level for 2026/27. But once your adjusted net income exceeds £100,000, the allowance is withdrawn at a rate of £1 for every £2 over the threshold. By £125,140 it has gone entirely.

Losing the allowance while paying 40% tax on the extra income produces a punishing combined effect. For every £100 you earn between £100,000 and £125,140:

• £40 goes in higher-rate tax on the £100 itself; and
• £50 of personal allowance disappears, dragging another £50 of income into 40% tax — a further £20.

That is £60 of tax on £100 of income — a 60% effective rate, before employee National Insurance at 2% takes it to 62%. It is a higher marginal rate than the 45% additional rate paid by people earning far more, which is why this band is nicknamed the tax trap.

What counts as adjusted net income?

Everything in this article turns on adjusted net income — HMRC's measure for the personal allowance taper, the childcare schemes and the Child Benefit charge. Broadly, it is your total taxable income (salary, bonus, self-employment profits, rental income, dividends, most benefits in kind, taxable savings interest), minus:

• the gross value of personal pension contributions you make (relief-at-source contributions grossed up by 20%); and
• the gross value of Gift Aid donations.

Two things catch people out. First, it is not just your salary — a bonus, a company car benefit or untaxed rental profit can quietly push you over £100,000. Second, employer pension contributions and salary-sacrifice contributions never enter the calculation in the first place, because they come out before your income is measured.

How do pension contributions get you out of the trap?

Because personal pension contributions reduce adjusted net income pound for gross pound, a contribution that brings you back to £100,000 restores your full personal allowance. The tax relief on income in the 60% band is therefore effectively 60% — you give up £40 of take-home pay for every £100 that lands in your pension.

Worked example: a £110,000 earner

Emma earns £110,000 in 2026/27 and has two children in nursery. She pays £8,000 into her personal pension (a relief-at-source scheme). The provider adds basic-rate relief, so £10,000 goes into her pension pot, and her adjusted net income falls to £100,000. The results:

• Her full £12,570 personal allowance is restored — worth £2,000 of tax at 40%.
• She claims a further £2,000 of higher-rate relief through Self Assessment.
• Net effect: a £10,000 pension pot has cost her £4,000 — 60% effective relief.
• Because she is back at £100,000, she also keeps tax-free childcare and the funded hours for both children — for two nursery-age children in full-time care that support alone is commonly worth well over £10,000 a year.

Counting the childcare support, the true cost of Emma's £10,000 pension contribution can be close to zero — and in some cases contributing genuinely leaves a family better off overall than the pay rise that caused the problem.

What about salary sacrifice?

If your employer offers salary sacrifice (also called salary exchange), you agree to a lower salary and your employer pays the difference straight into your pension. This is usually the most efficient route of all, because the sacrificed salary escapes employee National Insurance as well as income tax, and it never appears in your adjusted net income. Some employers also share the employer National Insurance they save. If a bonus is about to push you over £100,000, ask whether it can be sacrificed into your pension before it is paid — many payroll teams handle this routinely, but it must be agreed before the bonus becomes payable.

How do I keep tax-free childcare and the 30 free hours?

Unlike the personal allowance taper, the childcare schemes are a cliff edge. To qualify for tax-free childcare (the government adds £2 for every £8 you pay in, up to £2,000 per child per year) and the 30 hours of funded childcare for working parents in England, each parent's adjusted net income must be £100,000 or less. Go to £100,001 and both entitlements vanish entirely — there is no taper.

Note the asymmetry: a household with two parents each earning £99,000 (£198,000 combined) keeps everything; a household where one parent earns £101,000 and the other earns nothing loses it all. If either partner is hovering just over the line, a pension contribution that brings adjusted net income back to £100,000 protects the whole entitlement. You confirm your expected adjusted net income each quarter when you reconfirm eligibility, so a contribution planned for later in the tax year still counts — but make sure it actually gets paid before 5 April.

What about the High Income Child Benefit Charge?

The High Income Child Benefit Charge (HICBC) claws back Child Benefit when the higher earner in a household has adjusted net income over £60,000. The charge is 1% of the Child Benefit for every £200 of income above £60,000, so at £80,000 the benefit is wiped out entirely.

Child Benefit in 2026/27 is worth around £1,375 a year for the first child and £911 for each additional child, so a two-child family loses roughly £2,286 across the £60,000–£80,000 band — an extra ~11% on the marginal tax rate in that range. Pension contributions work exactly the same way here: reduce adjusted net income to £60,000 or below and the charge disappears. If you previously opted out of receiving Child Benefit to avoid the charge, remember to opt back in once contributions bring you under the threshold.

Can Gift Aid help too?

Yes — Gift Aid donations reduce adjusted net income by the gross donation (your gift plus the 25% the charity reclaims). A £800 donation reduces adjusted net income by £1,000, and a higher-rate taxpayer claims the extra relief through Self Assessment. Gift Aid is rarely the main tool — money given away is gone, whereas pension money is still yours — but if you already give to charity, make sure every donation is Gift Aided and goes on your tax return. One quirk worth knowing: you can elect to carry a donation back to the previous tax year if you make it before filing that year's return, which can rescue a threshold you have already breached.

How much can I contribute? The annual allowance

The annual allowance for 2026/27 is £60,000 (tapered for very high earners with income over £260,000, and reduced to £10,000 if you have already flexibly accessed a pension). Two further limits matter:

• Personal contributions attract tax relief only up to 100% of your relevant UK earnings for the year; and
• If £60,000 is not enough, you can carry forward unused annual allowance from the previous three tax years, provided you were a member of a registered pension scheme in those years — useful for clearing a large bonus or an exceptional year's profits.

When do I need to act?

The tax year ends on 5 April, and contributions count for the year in which they are actually paid — there is no carry-back for pension contributions. Don't leave it to the last week: providers need time to process payments, and salary-sacrifice arrangements need to be in place before the pay they apply to. The ideal time to plan is now, especially if a bonus, pay rise or strong trading year is likely to push you over £100,000. We covered the broader benefits of pension contributions — including employer contributions for company directors — in our guide to the tax benefits of pension contributions, and directors weighing up pay structure should also read our salary vs dividends guide for 2026/27.

A quick checklist

• Estimate your adjusted net income for 2026/27 — salary, bonus, benefits in kind, rental profits, dividends and interest, less gross pension contributions and Gift Aid.
• If it lands between £100,000 and £125,140, work out the contribution needed to bring it to £100,000 — the effective relief is 60%+.
• If you have children under 12, check the £100,000 childcare cliff edge for each parent separately.
• If the higher earner is between £60,000 and £80,000, factor in the Child Benefit charge.
• Prefer salary sacrifice where your employer offers it; otherwise use personal contributions and claim higher-rate relief through Self Assessment.
• Check your annual allowance and carry-forward position before making a large contribution.
• Pay before 5 April.

This article is general guidance based on the rules for the 2026/27 tax year, not personal financial or pension advice. Pension contributions lock money away until at least your late fifties, and the right amount to contribute depends on your circumstances — take advice before acting.

If your income is anywhere near one of these thresholds, a short planning conversation before the tax year end can be worth thousands of pounds. We run these calculations for professionals, company directors and families across Medway and Kent — see our personal tax planning service and our tax advisers in Kent page, or book a free consultation and we'll work out your position with you.