Has your hard-earned success turned into a heavy tax burden?
Or is 60% marginal income tax no big deal for you?
You decide as we trot through the good fun that is called…. Tax Policy!
What is the 60% Income Tax Marginal Rate?
In the UK, income tax rates rise incrementally based on earnings, with higher income levels taxed at progressively higher rates.
The top “additional rate” currently sits at 45% for taxable income over £125,140.
However, there is an even higher marginal rate that applies before reaching that top bracket.
Once an individual’s total income surpasses £100,000, they enter a unique “personal allowance taper” zone where their tax-free personal allowance begins to decrease.
The result? An eye-catching 60% marginal tax rate on earnings between £100,000 – £125,140.
Here’s how the arithmetic works:
- The standard personal allowance for tax year 2024/25 is £12,570, this is a form of tax relief.
- For every £2 of income over £100,000, £1 of personal allowance is lost.
- Once total income hits £125,140, the entire personal allowance is exhausted.
During this £25,140 “taper” band, an individual is not only paying the higher 40% income rate, but also losing £1 of their tax-free allowance for every £2 earned, therefore progressively losing that tax relief.
This equates to a 60% marginal rate tax on that slice of income.
Let’s visualise this effect with an example graph showing the UK’s marginal rates for different income levels:
If you hover over the £100k mark and follow up the curve you can see the increased effective tax rate.
History and Background
The scene and the players
The 60% marginal rate, while headline worthy, is not the “effective rate” but rather the rate derived from only that slice of income.
The “Effective Rate” on the other hand is the rate that the whole of it works out to be, which is what I’d say we should be thinking about here.
If we are comparing effective rates, then there have been times in the past when this was much, much higher.
Back in post war times in the second half of the last century the rate was more than 90% at times.
The arrival of Margaret Thatcher in 1979 brought that rate rapidly down to 60% ..
.. and then down further to 40% eight years later under Chancellor Nigel Lawson.
UK Prime Minister Margaret Thatcher changed the tax landscape dramatically in the early nineteen eighties
But what happened next?
Successive governments then thought it would be nice to add another band of extra tax on top of the higher rate band..
..and called it the very friendly sounding name of the “additional rate band”, which at present sits at 45%.
Why didn’t they just call it the “highest rate band”?
Maybe there’s more additions to come, what do you think?
Answers on a postcard please.
Anyway, In April 2010 the new dreaded 60% rate came back into our lives in Alistair Darling’s 2019 budget.
Chancellor of the Exchequer Alistair Darling brought in the tapering personal allowance claw-back in the 2019 budget statement.
Supporters of the move have argued that high “tax burdens on high earners” are fair and needed to generate revenue, fund public services, and reduce income inequality.
Critics contend such high “tax rates for high income individuals” dampen productivity and incentives for entrepreneurship, potentially driving top talent out of the UK
While the politics around “taxing the rich” will always be contentious, allowance claw-backs such as this seem to be evergreen policy tools for the lawmakers and look like they’ll be with us for the foreseeable future.
What’s the Tax Impact?
So am I moaning about small change and nickels and dimes? Well, Yes and No.
Yes, because the differential impact is relatively small in the scheme of things.
And No, because it is something you can take action to mitigate if you want to.
Investing in a pension for instance can bring your taxable income back to the £100k point where the taper kicked in.
But then you’d need to commit that cash now and also would be showing lower earnings if ever you wanted to apply for finance or similar.
Just for a visual comparison, let’s return to our graph and add in another line in red to show the effective tax rate if no personal allowance was lost.
The red line shows the effective tax rate if the personal allowance reduction taper were not enacted in policy.
For the various income levels let’s see the effective 2025 tax rates:
- £12,570 income = 0.00% effective rate (as they are covered by the personal allowance)
- £50,270 income = 14.97% effective rate (as they are paying 20% basic rate on anything above the personal allowance)
- £100,000 income = 27.43% effective rate (as they are now paying a blend of 0%, 20% and 40%)
- £125,140 income = 33.97% effective rate (as personal allowance is gone and they are paying a blend of 20% and 40%)
- £200,000 income = 38.10% effective rate.
Is it Getting Better or Worse?
We all need to make up our own minds about this question, and we need information for that.
Below I’ve created one more graph, this time showing the current situation, (i.e. from the first graph above) and have overlaid the tax rates in 1975 as published by the government.
Can you see a difference?
The Future of High Income Taxes
Whether the UK’s 60% marginal rate remains or gets overhauled will likely be a key topic in future tax policy debates.
Some argue the current system creates an uncompetitive tax burden on high earners compared to other nations.
Reformers may push to scrap the taper entirely, moving to a simpler flat rate above a higher income threshold.
On the other hand, if the Labour Party returns to office, they could double down by not only keeping the 60% rate but also lowering the £100,000 threshold.
Their 2019 manifesto seemed to propose a new 50% rate kicking too..
No matter what, tax planning for high earners will continue being important to mitigate liabilities within the bounds of the tax code; ever changing like a cherry blossom tree…without the blossoms…and the cherries.
Where to From Here?
Whether you view it as an unfortunate revenue grab or a justifiable tax burden on high earners, the UK’s 60% marginal rate is undeniably a highly discussed policy tool.
For individuals fortunate enough to earn over £100,000 annually, good tax planning for high earners is useful to mitigate the effects of this marginal tax trap.
Strategies ranging from pension contributions to investment vehicles can help retain more of those hard-earned pounds.
Looking ahead, the future of tax rates for high income individuals in the UK is very much up for debate across the political landscape.
A future government may simplify or even double down on taxing top earners.
Or a more fundamental shift towards wealth taxes rather than just income taxes could emerge.
Regardless of what path is ultimately taken, the debates around equitable taxation and balancing economic incentives with funding vital public services will rage on.
One thing is certain – the 60% rate has cemented as part of the landscape and UK tax code history.
For those impacted, the best defence is sound tax planning guided by expert advisors who can help navigate these turbulent policy waters.
Don’t let tax policy take you by surprise – get prepared to tackle it strategically.
