Pension Planning for High Earners UK 2026: 60% Tax Trap
UK pension planning for high earners (£100k+). Avoiding the 60% tax trap, managing the tapered annual allowance, carry forward, and IHT planning strategies.
Updated
Quick answer: UK high earners should prioritise three things: escape the 60% tax trap (£100k–£125,140) with pension contributions, navigate the tapered annual allowance above £260k adjusted income, and plan for the April 2027 pension IHT change. Carry-forward lets you contribute up to ~£200k in one tax year if you've underused prior allowances.
The 60% trap
From £100,000 to £125,140, losing the personal allowance creates a 60% marginal rate. Pension contributions (ideally salary sacrifice) in this band get 60% relief plus an NI saving — the most efficient contribution in UK finance.
Tapered allowance
Above £260,000 adjusted income, the £60k allowance tapers by £1 per £2 over, to a £10,000 floor at £360,000+. The "threshold income" test (below £200k) can sometimes keep the full allowance — relevant for directors controlling salary/dividend mix.
Carry-forward
Unused allowance from the past 3 years can be used now, if you were a pension member in each. Potentially £240,000 in one tax year.
Lump Sum Allowance
£268,275 caps your total tax-free 25%. A couple has two — £536,550 combined. Take it in phased tranches if approaching the cap.
IHT from April 2027
Unused pension pots may become subject to 40% IHT. Review nominations, consider lifetime gifting, and spend the pension first while leaving ISA/property for inheritance. Get specialist advice.
Frequently asked questions
Up to £60,000 in 2026/27 if your adjusted income is under £260,000. Above that, the annual allowance tapers by £1 for every £2 over the threshold, down to a minimum of £10,000 at £360,000 adjusted income. Carry-forward of up to 3 prior years' unused allowance is available.
Between £100,000 and £125,140 of taxable income, the personal allowance withdraws at £1 per £2 earned. The result is an effective 60% marginal tax rate on this £25,000 slice — the highest in the UK system. Pension contributions in this band give 60% tax relief.
Almost always, if available. Salary sacrifice saves 8% employee NI plus your marginal income tax rate (40-45% for high earners). Many employers also pass back the 15% employer NI saving. Total saving can exceed 50%.
If you've not used your full annual allowance in any of the past 3 tax years, you can use that unused amount in the current year, on top of your current year's allowance. You must have been a member of a UK pension scheme during each carry-forward year.
£268,275 per person in 2026/27. This is the maximum tax-free lump sum across all your pensions. Some older protections (Enhanced Protection, Fixed Protection 2014/16) allow higher tax-free amounts but require you to have applied before specific deadlines.
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