If your freelancing earns between £100,000 and £125,140, you may find that you fall into the 60% tax trap. What is this, though? And is there a way around it?
In this article, we’ll break down everything you need to know, and even explore ways you can legally reduce your tax bill. Let’s get into it.
What gets caught out by the 60% tax trap?
Most people in England, Wales, and Northern Ireland pay income tax using one or a combination of the the standard rates of 20%, 40%, or 45%, depending on how much they earn:
- Personal Allowance: Earn up to £12,570 and pay 0%
- Basic rate: Earnings between £12,571 to £50,270 are taxed at 20%
- Higher rate: £50,271 to £125,140 is taxed at 40%
- Additional rate: Anything you earn over £125,140 is taxed at 45%
So where does the 60% rate come into it? This tax trap kicks in for some higher rate taxpayers – specifically, anyone earning between £100,000 and £125,140. If your income falls in this bracket, you may be hit by a 60% tax bill (also known as the 60% tax trap, or the 100k tax trap).
How does it work?
The so-called tax trap happens because your tax-free Personal Allowance (which is £12,570 for the 2026/27 tax year) begins tapering off once your earnings tip over the £100,000 mark.
It reduces by £1 for every £2 you earn over £100,000, so if you earn £125,140 or more then your allowance disappears entirely.
What this ultimately means is that, for every additional £100 you earn between £100,000 and £125,140, you keep only £40 after income tax: £40 is charged at the higher rate, and then a further £20 is effectively lost because of the reduction in your Personal Allowance.
Does it affect freelancers?
The effective rate of 60% tax will affect anyone, including freelancers, whose earnings take them over £100,000. We have a separate guide which explains how freelancers pay tax in more detail!
Does it affect Scottish freelancers too?
Yes, and for Scottish taxpayers it can actually be worse. The UK-wide Personal Allowance of £12,570 is set by the UK government, so the tapering rules are exactly the same north of the border: you still lose £1 of your allowance for every £2 you earn over £100,000.
But here’s where you could end up paying more. Scotland sets its own devolved income tax bands, and earners over £100,000 fall into the Advanced Rate band, which taxes income between £75,001 and £125,140 at 45% (compared to 40% in England, Wales, and Northern Ireland).
This means that for every £100 you earn over £100,000, £45 is taxed straight away. Then, because you’re also losing 50p of your tax-free allowance for every £1 earned in this range, an extra £50 becomes newly taxable at 45%, adding another £22.50 to the bill.
Add these together, and you’re left with just £32.50 from every £100 you earn – a marginal tax rate of 67.5%, rather than the 60% faced elsewhere in the UK.
Can I avoid the 60% trap?
There are several perfectly acceptable ways to legally reduce the amount of tax you have to pay, therefore avoiding the trap, such as by increasing pension payments or exploring salary sacrifice schemes. We go into more detail below.
Pension payments
One of the best methods is to start paying into a pension or, if you’re already contributing, increase your payments.
By doing this, you’ll lower your adjusted net income, which means you can then reduce the amount of Personal Allowance you lose. You might even get the whole thing back if your income drops below the £100,000 threshold.
Salary sacrifice
Salary sacrifice is another good option, allowing you to give up or “sacrifice” part of your gross salary in exchange for non-cash benefits. For example, things like additional annual leave, cycle-to-work schemes, or electric vehicles.
It should be noted that pension contributions under salary sacrifice will be capped at £2,000 each year from 2029, so this may not be a long-term solution.
Gift Aid
Donating through Gift Aid means charities and community amateur sports clubs can claim an extra 25p for every £1 you give (but it won’t cost you any extra). As such, you can make charitable donations through Gift Aid to lower your taxable income.
This works by expanding your Basic Rate tax band, which helps to reduce the amount of income subject to higher-rate tax at 40%. For example, if you were to donate £1,000, that would equate to £1,250 of additional Basic Rate income.
Limited company
You could also consider setting up a limited company for your freelancing work.
As a director of a limited company, you’re legally separate from the business, and so you’re technically an employee (even if you’re also the owner!). This means, as both an employee and an employer, you get to decide the most tax-efficient way to pay yourself.
Most company directors opt to do this by taking a low salary (sometimes below minimum wage, which is allowed for directors) and paying themselves the rest through dividends – which aren’t subject to National Insurance.
Do I need an accountant?
While not strictly necessary, speaking to an accountant about your tax bill can be very reassuring! They will be able to simplify everything so you understand the impact of different options, and ensure you’re operating in the most tax-efficient way whilst staying strictly compliant.
Head over to our information hub for more guides, news and advice on navigating life as a professional freelancer, from finance to tech and more.
