During your playing career, you may sign contracts with bigger teams and see your salary rise as a result. At the peak of your career, you could quite easily earn more than £100,000, depending on who you play for.
While this level of income creates a lot of opportunities for improving your lifestyle now and building long-term wealth, it could also mean you fall into the 60% tax trap.
Managing your tax liability is an important part of financial planning because paying too much could limit your ability to save for the future.
Read on to learn how the 60% tax trap works and some ways we could help you reduce your Income Tax bill.
Understanding the basics of Income Tax
Before considering how the 60% tax trap works, it is necessary to review the basic rules around Income Tax.
As of 2026/27, the first £12,570 you earn each year is tax-free. This is your Personal Allowance.
The rest of your income is then taxed depending on which bracket it falls into. You will pay:
- The basic rate of 20% on earnings between £12,571 and £50,270
- The higher rate of 40% on earnings between £50,271 and £125,140
- The additional rate of 45% on earnings above £125,140.
However, there is another rule that applies to those who earn more than £100,000, which could mean you pay more than 45% Income Tax on a portion of your earnings.
The Personal Allowance taper and the 60% tax trap
The Personal Allowance is normally £12,570 but once your earnings exceed £100,000, you begin to lose part of this important threshold.
The allowance falls by £1 for every £2 you earn over £100,000. Once your income reaches £125,140, you lose your Personal Allowance altogether.
Because of this, you pay an effective rate of 60% Income Tax on earnings between £100,000 and £125,140.
Here is how this works.
- If your earnings increased from £100,000 to £101,000, you would pay the higher rate of 40% (£400) on the extra £1,000.
- However, you would lose £500 of your Personal Allowance. As such, you also pay 40% on that £500 (an extra £200).
- Added together, this means you pay a total of £600 tax on the additional £1,000. An effective rate of 60%.
As you progress in your career and sign more lucrative deals, the 60% tax trap could cost you a significant amount of your earnings.
Increasing pension contributions could help you manage the 60% tax trap but there are challenges to consider
One of the most effective ways to deal with the 60% tax trap is to increase your pension contributions. This is because pension contributions are deducted from your income to arrive at your ‘adjusted net income’, which is the figure that determines whether you lose any of your Personal Allowance.
Using the earlier example, if your earnings increased to £101,000 and you took that additional income, you would pay £600 tax on it.
However, if you paid the £1,000 into your pension instead, your taxable income (adjusted net income) would be £100,000, meaning you keep your full Personal Allowance. You would also receive 40% tax relief on the pension contribution.
That said, increasing pension contributions may not always be the right choice for you. Remember, you will not normally be able to access funds in your pension until you reach the normal minimum pension age (NMPA) of 55 (rising to 57 from April 2028).
In some cases, you might be able to access your pension savings earlier if you have an adjusted NMPA, but you will still likely need to wait until later in life.
As such, you may want to consider whether the extra funds would be more beneficial to you now, even if you pay more tax on them.
There are also limits to the amount of tax relief you can receive on your pension contributions. You can only benefit from tax relief on contributions up to 100% of your earnings.
Also, if you exceed the Annual Allowance (£60,000 in 2026/27), you will trigger a tax charge which, in effect, recovers tax relief on contributions over the threshold. You may be able to carry forward unused Annual Allowance from the past three years, provided you have already used the allowance for the current tax year and had a pension plan in place in those earlier years.
If you have already used your Annual Allowance for the year, increasing pension contributions may not be the most suitable option.
We can help you find the most tax-efficient ways to manage your earnings
Navigating the 60% tax trap can be challenging but fortunately, we can support you. We will discuss your pension contributions and ensure you are on the right side of complex rules such as the Annual Allowance.
If you decide that increasing pension contributions is not the right strategy for you, we can discuss alternative ways to reduce your overall tax liability and make use of your increased earnings.
Please email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.