An estimated 160,000 more people are expected to lose all or part of their tax-free personal allowance in the current tax year and a greater number of individuals are being dragged into the 45% tax band, new figures show.
According to a Freedom of Information request by NFU Mutual, an estimated 1.18 million people are set to have their entire £12,570 tax-free personal allowance removed in the current tax year ending April, up from 1.09 million people in 2024/25.
An additional 752,000 are expected to have part of their personal allowance removed in 2025/26, up from 682,000 people the previous year.
NFU Mutual said in the forthcoming tax year starting April 2026, a further 129,000 more people will lose part or all of their personal allowance, taking the total affected to more than two million taxpayers.
Under current rules, taxpayers with income over £100,000 have their £12,570 tax-free personal allowance gradually withdrawn. For every £2 of income they have over £100,000, they lose £1 of their personal allowance. This means that any earnings between £100,000 and £125,140 are effectively taxed at 60% plus 2% National Insurance.
This ‘tax trap’ is expected to affect more people in the coming years as incomes rise and tax thresholds remain frozen until 2031. The Office for Budget Responsibility said after the 2025 Budget, the proportion of taxpayers expected to be in the higher or additional rate tax brackets is forecast to rise from 15% in 2021/22 to 24% in 2030/31.
Sean McCann, chartered financial planner at NFU Mutual, said: “It’s the ambition of many people to reach an income of £100,000, but it does come with an unexpected sting in the tail.
“For every £2 of income over £100,000, a taxpayer loses £1 of their tax-free personal allowance of £12,570.”
McCann said putting money in pensions can be an effective way of mitigating the impact for many caught by the 60% tax trap as they reduce taxable income.
McCann added: “Making the pension contribution by April 5 could help restore some or all of the tax-free allowance for the current tax year. As well as providing significant tax savings, it also has the advantage of boosting retirement savings.
“This can be particularly attractive for those nearing retirement in the knowledge that they can currently access the money in their pension from age 55 if needed.”
McCan also suggested that individuals look at employee salary sacrifice pensions as well as giving gifts to charity via gift aid.
