If you earn a six-figure salary, it’s easy to think “an extra £10,000 is just more money in the bank.” But the UK tax system doesn’t work like that.
In fact, if you earn £110,000 instead of £100,000, you could end up with a lot less of that £10,000 in your pocket than you expect.
That’s because of a sneaky tax trap that kicks in once your income passes £100,000 — and a well-timed pension contribution can be your escape route.
The £100,000–£125,140 Danger Zone
Once your income goes above £100,000, you start to lose your personal allowance (the amount of income you can earn tax-free).
For every £2 you earn over £100,000, you lose £1 of this allowance. By the time you reach £125,140, you’ve lost it completely.
This creates an effective tax rate of 60% in that income band:
- 40% higher-rate income tax
- Plus an extra 20% because you’re being taxed on income that would otherwise be tax-free.
The Numbers — £110,000 vs £100,000 (2025/26)
| Salary | Income Tax | National Insurance | Take-Home Pay |
|---|---|---|---|
| £100,000 | £27,432 | £4,011 | £68,557 |
| £110,000 | £33,432 | £4,211 | £72,357 |
The rest — £6,200 — goes straight to HMRC.
How a Pension Contribution Changes the Game
If, instead of taking the £110,000 as salary, you pay £10,000 directly into your pension via salary sacrifice, your taxable income drops back to £100,000.
Here’s what happens:
- You keep your full £12,570 personal allowance
- You avoid the 60% effective tax band
- You still get the full £10,000 invested for your retirement
Why You Might Get £11,500 in Your Pension Instead of £10,000
When you sacrifice £10,000 of salary into your pension:
- Your employer saves £1,500 in NI (15% of £10,000)
- Some employers keep this saving
- Many pass it into your pension along with your contribution
If they pass it all on, your pension pot gets:
- £10,000 (your sacrificed salary)
- £1,500 (employer’s NI saving)
= £11,500 total
If they also make their regular pension contributions on top, the number could be even higher.
It Gets Worse! — The Childcare Trap
Crossing the £100,000 income mark doesn’t just hurt because of the 60% tax rate.
It can also mean losing access to valuable government support.
Right now, parents of 3–4 year olds in England can get up to 30 hours of free childcare a week (worth several thousand pounds per year) if both parents earn under £100,000 each.
From September 2025, this will extend to younger children too.
If your income tips over £100,000 by even £1, you could lose this entitlement entirely.
That means:
- A £10,000 salary increase could actually cost you £5,000–£8,000 or more in lost childcare support on top of the extra tax.
- In extreme cases, the combined effect of tax, NI, and lost childcare can leave you worse off overall than if you’d stayed under £100,000.
By using pension contributions or other allowable deductions to bring your adjusted net income back under £100,000, you could preserve your free childcare entitlement and avoid this hidden pay cut.
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