Caught in the 60% tax trap?

Here's how to get out

In a nutshell


HMRC will give you 100% tax relief on pension contributions up to your earned income/annual allowance.


However, a quirk in our tax system means anyone earning between £100K and £125K must pay an effective 60% tax rate.


That’s because when you earn over £100K taxable income, your tax-free personal allowance tapers away at a rate of £1 for every extra £2 you earn.


The solution could be to use pension contributions to reduce your taxable income under £100K.

Please note, the information presented in this page is for illustrative purposes only and does not constitute tax advice or recommendations.

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With investment, your capital is at risk. Tax treatments apply.

What could this mean for me?

It’s often thought that the highest UK tax rate is 45% but that’s not the case; a quirk in the system means that anyone earning between £100K and £125K can find themselves paying a whopping 60% tax on this portion of their earnings. Thankfully there are two ways this could be avoided via pension contributions.

See how you could pay less income tax by increasing your monthly pension contributions 

You pay into your pension


per year

You take home


per year

(You pay £0 in tax)

Did you know?

Increasing your monthly pension contribution to the maximum annual allowance of £40,000 per year can reduce your income tax liability.

This calculator is for guidance only, and tax treatments depend on your personal circumstances. If you’re unsure if a pension is right for you, please seek financial advice.

Find out about Nutmeg pensions and what they could do for you.
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With investment, your capital is at risk. Tax treatments apply.

In more detail

It might sound like the very definition of a first world problem but as the example above shows, a six figure income can be quite a burden tax-wise.

Luckily contributing to a Nutmeg pension can simultaneously reduce your income tax liability and improve your financial future. 

Imagine you earn £125K and, following a chat with one of our experts, decide to put £20K into a Nutmeg pension. We claim back basic rate tax relief of £5K from HMRC on your behalf and add it to your pension, bringing your total contribution to £25K. 

This has two big effects on your taxable income.

Firstly, you can claim another £5K in higher-rate tax relief. Secondly, HMRC now sees your adjusted income as £100K (total income minus total pension contributions) which means you get back your full personal tax-free allowance, reducing your income tax liability by a further £5K. 

There’s plenty more to consider (this is the knotty world of tax and pensions after all), but that’s the gist. To find out what all this could mean for you just get in touch. That’s what we’re here for.

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