Number of pensioners in 60% tax trap more than doubles in three years

A new freedom of information request by interactive investor to HMRC reveals that 77,000 pensioners (aged 66 plus) were caught in the 60% tax trap, earning between £100,000 and £125,140, in 2024-25. This is more than double the number of pensioners falling into this tax bracket three years before.

Key facts

• 77,000 pensioners (aged 66 plus) paid 60% income tax last year, earning between £100,000 to £125,140 in 2024-25, up from just 34,000 in 2021-22
• The number of pensioners paying 60% more than doubled between tax-year ending April 2022 and tax-year ending April 2025
• The number of pensioners paying 60% tax increased 13% from the previous year in tax year ending April 2025, 55% in tax year ending April 2024, 16% in tax year ending April 2023 and 12% in tax year ending April 2022
• The state pension age is currently 66 but rising to 67 between 2026 and 2028.

Notes - Based on freedom of information request received from HMRC.

What is the 60% tax trap?

Although income tax is charged at 20%, 40% or 45%, depending on earnings, individuals earning over £100,000 effectively pay 60% tax on a portion of their income. This is because the £12,570 tax-free personal allowance is gradually withdrawn once income exceeds £100,000. For every £2 earned over £100,000, individuals lose £1 of their personal allowance, meaning it disappears once income hits £125,140.

For example, a higher earner receives a pay rise from £100,000 to £110,000. They pay 40% income tax on £10,000 but also lose £5,000 of their personal allowance, which is also taxed at 40% - a further £2,000. In total, they pay £6,000 income tax on the £10,000 earned above £100,000.

Individuals earning over £125,140 also pay 60% tax on their earnings between £100,000 to £125,140, but their higher earnings, over £125,140, will be taxed at a lower rate of 45% as they have already lost the whole personal allowance.

Craig Rickman, pensions expert at interactive investor, says: “This data reveals the punishing impact of the 60% tax trap on older workers, as frozen tax thresholds pull more pensioners’ incomes into six-figure territory. The threshold for losing the personal allowance has stubbornly stuck at £100,000 for more than 15 years, since it was introduced in April 2010.

“If the tax-trap threshold had kept pace with inflation, workers would now be able to earn £155,000 before being hit with 60% income tax. With the deep freeze on income tax bands set to endure until 2028-29, and fears the government could extend it even further, thousands more people above state pension age will be hit with punitive rates of tax on some of their income.

“More people now work well into their late 60s, including high earners at the peak of their careers. They often enjoy their work, and the continued sense of purpose, so want to carry on consulting or running a business until well into their golden years.

“However, there’s a risk that ultra-high tax rates could mean losing older talent. As taxes take an even bigger bite from the cherry, many older high earners will weigh up whether they’re better off stepping back and earning less, rather than risk facing such a heavy tax burden.”

Impact on 2026’s expected state pension rise

With the full state pension set to increase £573 a year to £12,547 from April 2026 now that the triple lock’s wage and inflation data have been confirmed, dozens of thousands of pensioners who are still working will see 60% of this rise swallowed up in tax.

Rickman says: “You don’t have to claim your state pension at age 66 – rising to 67 between 2026 and 2028 - and will receive an income boost for every year you choose to delay. This might make sense to older workers currently caught in the tax trap but plan to gradually or permanently down tools and expect to drop to a lower tax band from next year. A note of caution here though - you may have to live for up to two decades to make up for a year of lost state pension income.”

How to beat the 60% tax trap

When it comes to beating the 60% tax trap, pensions are one of your closest allies. That’s because pension contributions can reduce what’s called your adjusted net income - in other words, it lowers amount of income that’s subject to tax.

Rickman says: “Paying into a pension to bring your income below £100,000 can attract 40% income tax relief and enable you to keep your personal tax-free allowance. Just don’t forget to include the pension contribution on your tax return if it goes into a private pension, like a SIPP, as you only receive the 20% basic-rate relief upfront.

“Older workers who have already made a flexible and taxable withdrawal from their pension need to watch out for the money purchase annual allowance (MPAA). This lowers the maximum amount you can into pensions every year and get upfront tax relief from £60,000 to just £10,000 and also means you can no longer use carry forward relief, which enables you to tap into unused annual pension allowances from the previous three tax years.”