If your income is between £100,000 and £125,140, you are in one of the most poorly understood tax situations in the UK. For every extra pound you earn in this band, you effectively pay 60% in combined income tax — despite the highest headline rate being 45%. It is not listed anywhere on HMRC’s standard rate tables, which is why many people do not discover it until they see their tax bill.
Salary sacrifice is one of the most effective tools for getting out of the trap, and an electric car scheme is one of the most useful forms of salary sacrifice for people in this income range.
Key Takeaways
- The 60% tax trap applies to income between £100,000 and £125,140. In this band, the personal allowance is withdrawn at a rate of 50p for every £1 earned, creating an effective 60% marginal rate.
- Reducing your adjusted net income below £100,000 restores your personal allowance. Salary sacrifice is one of the most practical ways to achieve this.
- An electric car salary sacrifice scheme lets you reduce your gross pay, potentially pulling your adjusted net income below the £100,000 threshold.
- The BIK tax on an EV leased through salary sacrifice is 4% of the car’s P11D value in 2026/27 — modest compared to the income tax you would otherwise pay on that portion of your salary.
- For a worked example and full comparison of salary sacrifice options, see our salary sacrifice electric car guide.
What is the 60% tax trap?
The personal allowance is the amount of income you can earn each year without paying income tax. In 2026/27, the personal allowance is £12,570.
Once your income exceeds £100,000, HMRC begins withdrawing the personal allowance. For every £2 you earn above £100,000, you lose £1 of personal allowance. By the time your income reaches £125,140, the personal allowance has been withdrawn entirely.
This withdrawal creates an effective marginal tax rate of 60% in the £100,000–£125,140 band. Here is why:
- You pay 40% income tax on income in the higher-rate band (up to £125,140).
- For every extra pound earned, you lose 50p of your personal allowance. That lost allowance was sheltering income that was previously tax-free, and it now falls into the 40% tax band.
- 40% tax on the original pound + 40% tax on the newly exposed personal allowance income = effectively 60p tax on each £1 earned.
The result is a 60% effective marginal rate that is higher than the additional rate (45%) that applies above £125,140. Earning more money in this band costs you more in tax than earning even more above it.
Why does this affect so many more people now?
The income tax thresholds have been frozen since 2021 and are scheduled to remain frozen until at least April 2028 (verify at GOV.UK). Over the same period, wages have risen with inflation. As a result, the number of people dragged into the £100,000–£125,140 band has grown substantially. Analysis from Rathbones Investment Management suggests the number of taxpayers affected could reach 2.3 million by 2029.
If you have recently crossed the £100,000 threshold through a pay rise, bonus, or promotion, you may be in the trap without yet realising it.
How salary sacrifice helps
Salary sacrifice reduces your gross pay. More importantly for this context, it reduces your adjusted net income — which is the figure HMRC uses to calculate your personal allowance entitlement.
If your adjusted net income is £110,000 and you sacrifice £12,000 per year (£1,000 per month) through a salary sacrifice EV scheme, your adjusted net income falls to £98,000 — below the £100,000 threshold. Your full personal allowance is restored. The income that was previously taxed at the effective 60% rate now benefits from the £12,570 personal allowance.
This is not a loophole. HMRC explicitly recognises salary sacrifice as a legitimate arrangement that reduces adjusted net income, and GOV.UK guidance on salary sacrifice confirms its use for this purpose.
What does this mean in practice?
Illustrative example (clearly labelled — not personalised tax advice, not actual market pricing):
Two scenarios for an employee with adjusted net income of £112,000 before any sacrifice:
Without salary sacrifice:
- Income in the £100,000–£125,140 band: £12,000
- Effective marginal rate on that £12,000: 60%
- Additional tax paid compared to earning exactly £100,000: approximately £7,200
With £12,000 annual salary sacrifice (£1,000/month):
- Adjusted net income falls to £100,000
- Personal allowance fully restored: £12,570
- The £12,000 sacrifice is no longer subject to the 60% marginal rate
- Benefit-in-Kind tax on the EV is calculated separately (P11D value × 4% BIK rate × your income tax rate)
- For a £40,000 P11D car: £40,000 × 4% = £1,600 BIK value; × 40% income tax = £640 BIK tax per year / £53.33 per month
The BIK tax of £640 per year is significantly lower than the tax saving from restoring the personal allowance, even before accounting for the income tax and NI saving on the sacrifice itself.
These figures are illustrative only. Your actual figures depend on your precise adjusted net income, the car’s P11D value, and other income sources. Consult a tax adviser before making decisions based on these principles.
Other ways to reduce adjusted net income
Salary sacrifice through an EV scheme is one route, but there are others:
Pension contributions: Making personal pension contributions or additional employer contributions through salary sacrifice reduces adjusted net income. This is the most common route for escaping the trap.
Gift Aid donations: Charitable donations made through Gift Aid reduce your adjusted net income by the grossed-up value of the donation.
Combining strategies: Many people use a combination of pension contributions and EV salary sacrifice to bring their adjusted net income below £100,000. The key is that the total must bring adjusted net income below the threshold, not merely reduce it within the band.
Why an EV scheme specifically?
Compared to other forms of salary sacrifice, an electric car scheme has a unique feature: the BIK tax on a fully electric vehicle is deliberately kept low by government policy to encourage EV adoption. At 4% in 2026/27, the BIK charge on even a premium EV is very modest.
If you were to use a petrol car scheme to achieve the same adjusted net income reduction, the BIK rate would be 25%–37% of the P11D value — potentially large enough to create a significant new tax bill that erodes the benefit.
An EV scheme gives you a real transport benefit (a new car, fully insured and maintained) in exchange for a salary reduction that achieves your tax planning goal, with a BIK charge that is small enough not to undo the saving.
Key checks before acting
- Verify your adjusted net income — this is not the same as gross salary. It includes all taxable income and is reduced by pension contributions. Check your self-assessment return or consult an accountant.
- Verify current BIK rates at GOV.UK — the rates stated in this article are correct at time of writing but should be confirmed before any decision.
- Confirm your employer offers a salary sacrifice scheme — if not, the scheme cannot be accessed independently.
- Speak to a financial adviser or accountant — this is a tax planning matter. The principles are sound, but the application to your specific circumstances should be reviewed by a qualified adviser.
Frequently Asked Questions
What is adjusted net income and how is it different from my salary? Adjusted net income is the HMRC figure used to calculate entitlement to the personal allowance. It starts with your total income from all sources and is reduced by certain deductions, including pension contributions made outside salary sacrifice and Gift Aid donations. Salary sacrifice reduces your gross pay before it becomes adjusted net income. Your employer shows this on your P60.
Can I be caught in the 60% trap even if I do not earn a bonus? Yes. Any income source can push you into the band, including investment income, rental income, or income from a side business. If your total adjusted net income from all sources is between £100,000 and £125,140, the trap applies.
Does salary sacrifice for an EV car also save National Insurance? Yes. Because the sacrifice reduces your gross pay, you pay NI on a lower figure. For employed people in the £100,000–£125,140 range, the NI saving is at the 2% rate (which applies above the Upper Earnings Limit), so it is smaller than the income tax saving but still real.