The 60% Tax Trap for US Citizens in the UK

The UK 60% tax trap hits income between £100,000 and £125,140. In that band, the £12,570 Personal Allowance is withdrawn by £1 for every £2 of income, so each extra £1 costs 40p in tax plus 20p from the lost allowance. A US citizen in the UK suffers the same UK charge. The usual fixes, pension contributions and Gift Aid, work for UK tax, but only pension contributions reliably work on the US return too.

The trap is the highest marginal Income Tax rate in the UK system, and it falls on a common salary range for professionals in London. For an American, the question is not only how to escape it in the UK, but whether the escape route creates a US problem. This guide explains how the trap works for 2026/27, which planning steps survive contact with the IRS, and which do not. It covers Income Tax in England, Wales and Northern Ireland; Scottish rates differ.

How the 60% tax trap works

Everyone starts with a Personal Allowance of £12,570 for 2026/27. Once your "adjusted net income" exceeds £100,000, the allowance is reduced by £1 for every £2 above that limit. It reaches zero at £125,140. GOV.UK sets out the rule on its Income Tax rates page for income over £100,000.

The arithmetic

Take £100 of extra salary inside the band. You pay 40% higher-rate tax on it, which is £40. You also lose £50 of Personal Allowance, so a further £50 becomes taxable at 40%, costing £20. The total is £60 of Income Tax on £100 of income. Adding 2% employee National Insurance brings the marginal deduction to 62%.

Other cliffs at £100,000

The same threshold removes eligibility for Tax-Free Childcare and the working-parent free childcare hours in England. For a family with young children, crossing £100,000 by a small amount can therefore cost more than the extra pay.

What adjusted net income means

The taper is tested on adjusted net income, not gross salary. Broadly, that is your total taxable income less certain reliefs: gross pension contributions and grossed-up Gift Aid donations. HMRC explains the calculation in its guidance on adjusted net income. Consequently, reducing adjusted net income to £100,000 restores the full allowance.

Escaping the 60% tax trap as a US citizen

Two UK tools do most of the work. Their US treatment is very different.

Pension contributions

A pension contribution that brings adjusted net income back to £100,000 saves 60% UK Income Tax on the amount contributed. For a US citizen resident in the UK, Article 18(5) of the UK-US Income Tax Treaty generally allows contributions to a UK pension scheme to be deducted or excluded for US tax as well, up to the limits that would apply to a comparable US plan. That makes pension contributions the cleanest fix. Our guide to UK pension contributions and Article 18 explains the limits and conditions.

Gift Aid donations

Gift Aid donations to UK charities also reduce adjusted net income. However, the US generally allows a charitable deduction only for gifts to US-qualified organisations, and the UK-US treaty contains no general rule extending that to UK charities. Therefore, a Gift Aid donation can cut UK tax without reducing US taxable income. Giving through a dual-qualified charity structure can solve this, where one exists for your chosen cause.

Salary sacrifice

Salary sacrifice into a pension reduces contractual pay, which also saves National Insurance. For US purposes, the employer contribution is covered by the same Article 18(5) relief. However, the UK government has announced limits on National Insurance savings from salary sacrifice in future years, so check the position for the year concerned.

Why the US return usually does not get worse

A common worry is that lowering UK tax will increase US tax. In practice, that is rare for a UK employee. UK Income Tax at 40% to 60% is far above US rates on the same salary, so Americans in this band carry large excess foreign tax credits in the general category. Reducing UK tax through a pension contribution reduces the excess, not the US bill. Our foreign tax credit and double taxation page explains how those credits work.

Investment income counts too

Adjusted net income includes savings interest, dividends and rental profit, not just salary. An American with US brokerage income can be pushed into the taper by income they never spend. Our guide to UK savings and dividend allowances for US citizens covers how that income is taxed.

An illustrative case

Consider an illustrative US citizen in London with a £118,000 salary and no other income in 2026/27. The figures are illustrative. She is £18,000 into the taper and loses £9,000 of Personal Allowance. A gross pension contribution of £18,000 brings her adjusted net income to £100,000 and restores the full allowance, saving about £10,800 of UK Income Tax. Under Article 18(5), the contribution is also excluded from her US income, within US limits. Her US tax was already nil because of foreign tax credits, and it stays nil. Our US tax on UK pensions page covers what happens when the pension is later drawn.

If your income is near £100,000, book a consultation with our US-UK tax team. We model the 60% tax trap on both returns before your year-end.

Frequently Asked Questions

What is the 60% tax trap?

The 60% tax trap is the effective UK Income Tax rate on income between £100,000 and £125,140. In that band, the £12,570 Personal Allowance is withdrawn at £1 for every £2 of income, so 40% tax plus the lost allowance produces a 60% marginal rate for 2026/27.

Does the 60% tax trap apply to US citizens living in the UK?

Yes. A US citizen who is UK resident pays UK Income Tax on the same basis as any other resident, including the Personal Allowance taper above £100,000. The UK tax paid is generally creditable against US tax on Form 1116.

How do I avoid the 60% tax trap?

Reduce your adjusted net income to £100,000 or below. Gross pension contributions and grossed-up Gift Aid donations both reduce adjusted net income, which restores the Personal Allowance.

Are UK pension contributions deductible on a US tax return?

Generally yes for a US citizen resident in the UK. Article 18(5) of the UK-US Income Tax Treaty allows contributions to a UK pension scheme to be deducted or excluded for US tax, up to the limits that would apply to a comparable US plan, provided the conditions in the article are met.

Is Gift Aid deductible on my US tax return?

Generally not. The US allows a charitable deduction mainly for gifts to US-qualified organisations, and the UK-US treaty has no general provision for donations to UK charities. A Gift Aid donation can reduce UK tax without reducing US taxable income.

Will reducing my UK tax increase my US tax?

Usually not for a UK employee in this income band. UK Income Tax normally exceeds US tax on the same salary, creating excess foreign tax credits. Lowering UK tax typically reduces the excess credits and leaves US tax unchanged.