For the 2026 to 27 tax year, individuals earning between £100,000 and £125,140 can face an effective marginal income tax rate of 60 percent.
This higher rate often comes as a surprise, as it does not appear as a separate band on standard tax tables.
Across Oxfordshire and the Thames Valley, we regularly speak with professionals and business owners who only become aware of this issue once the impact is already felt.
Understanding how the marginal tax trap works allows individuals to plan ahead with greater clarity and confidence.
How the personal allowance taper works
The personal allowance remains at £12,570 for the 2026 to 27 tax year.
Once adjusted net income exceeds £100,000, this allowance is withdrawn at the rate of £1 for every £2 of additional income.
By the time income reaches £125,140, the personal allowance is fully removed.
This withdrawal is what creates the marginal tax trap.
income above £100,000 is taxed at the higher rate of 40 percent, an additional effective charge arises because income that would normally be tax free becomes taxable.
Why the effective rate reaches 60 percent
For every additional £1 earned above £100,000, 40 percent income tax applies.
At the same time, half of that £1 reduces the personal allowance, meaning more income is brought into charge at 40 percent.
In practical terms, an extra £1,000 of income can result in £400 of higher rate tax plus a further £200 arising from the loss of £500 of personal allowance.
The combined effect produces an effective marginal rate of 60 percent within this band.
Because income tax thresholds are currently frozen until at least April 2031, more individuals are gradually being drawn into this band as earnings increase over time.
The interaction with child benefit
The High Income Child Benefit Charge should also be considered as part of any review.
For 2026 to 27, the charge applies where adjusted net income exceeds £60,000, and Child Benefit is fully withdrawn once income reaches £80,000.
While recent changes have reduced the severity of the marginal impact compared with earlier years, the interaction between income tax and child benefit can still influence planning decisions.
Further details are available on GOV.UK
https://www.gov.uk/child-benefit-tax-charge
Planning considerations
There are legitimate steps that may help reduce adjusted net income below £100,000 or soften the impact of the personal allowance withdrawal.
Pension contributions are often one of the most effective tools.
Personal pension contributions attract tax relief and reduce adjusted net income for the purposes of calculating the personal allowance.
When timed carefully, contributions can restore some or all of the allowance and significantly reduce the effective rate of tax.
This is an area where early review can make a meaningful difference before the end of the tax year.
More information on pension tax relief is available here
https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief
For more information on how we can help you here at The MGroup click here
Wendy Tatham – Partner at The MGroup Partnership “The marginal tax trap often catches people out because it is not obvious. What we see time and again is that small changes, made early enough, can significantly improve the outcome.”
Why awareness matters
The 60 percent marginal band is often referred to as a hidden tax trap.
It does not appear in headline rates, yet it can materially affect decisions around bonuses, dividends, additional work or changes in working patterns.
Individuals approaching this income level may benefit from reviewing their position early to ensure planning opportunities are not overlooked.
Darren Green – Partner at The Mgroup Partnership “Taking time to review earnings before the year end gives people options. Once the year has closed, the opportunity to act is often lost.”
Our approach
Across Oxfordshire and the Thames Valley, we support clients by helping them understand how tax rules apply in practice, not just in theory.
Clear explanations, forward planning and considered advice help reduce uncertainty and avoid unwelcome surprises.
If you would like to review your position or discuss potential planning options, we would be happy to arrange a no obligation conversation.
Contact The MGroup
https://www.themgroup.co.uk/contact-us/