“I Took a 25% Pay Cut to Dodge the £100k Tax Trap”

The Costly Tax Threshold
For many high-earning professionals, navigating the UK tax system can be a minefield. One taxpayer recently revealed a bold decision: taking a 25% pay cut to avoid exceeding the £100,000 income threshold, which triggers a higher tax rate and reduces personal allowances. This move highlights how tax thresholds can influence life-changing financial decisions, sometimes in unexpected ways.
The £100,000 mark in the UK tax code is a notorious tipping point. Once income exceeds this threshold, personal allowance is gradually withdrawn, effectively increasing the marginal tax rate and making each additional pound earned less worthwhile. For some, it’s more financially prudent to earn slightly less to maintain a better overall net income.
Understanding the £100k Tax Trap
The so-called “£100k tax trap” works like this:
Every individual in the UK has a personal allowance, currently around £12,570, which is the portion of income not subject to tax.
When income exceeds £100,000, the personal allowance is reduced by £1 for every £2 earned over the threshold.
Effectively, the marginal tax rate in this range can reach 60%, considering income tax and national insurance combined.
This creates a unique dilemma for high earners: earning more can actually leave less money in your pocket once the allowance is withdrawn.
A 25% Pay Cut by Choice
The worker in question—who requested anonymity—decided to reduce their salary by a quarter to remain below the £100,000 threshold.
"It wasn’t an easy decision," they explained. "But I realised that by earning more, I’d actually lose a significant portion to taxes. Cutting my pay meant I kept more of what I earned overall and avoided the financial penalty."
This choice highlights a surprising truth: sometimes less is more in a tax system with abrupt thresholds. By voluntarily reducing income, the individual maximized their net take-home pay and minimized exposure to the punitive tax band.
The Human Side of Tax Planning
While tax planning is often seen as a dry or technical topic, stories like this demonstrate the real-world impact on people’s lives and choices. Workers don’t make decisions solely based on ambition—they also consider financial stability, lifestyle, and the consequences of higher taxation.
Choosing a pay cut may come with sacrifices, such as reduced retirement contributions, smaller bonuses, or lower savings capacity. Yet, for many, it is a calculated trade-off: keeping more of what they earn now versus chasing a gross figure that results in disproportionately higher taxes.
How Common Is This Decision?
High earners navigating the UK tax system often face this dilemma. Financial advisors report that the £100k threshold causes some professionals to:
Delay promotions or bonus acceptance
Reduce overtime or consultancy work
Adjust freelance income or dividends
It’s not necessarily about greed or mismanagement—it’s about adapting behavior to the system. People naturally respond to incentives, nand a steep marginal tax rate can discourage additional work, even if they are capable of earning more.
Experts Weigh In
Financial experts note that the £100k threshold is a classic example of a policy-created distortion in behavior.
John Matthews, a tax adviser, explained:
"This is an example of how the system unintentionally discourages income growth within certain ranges. Taxpayers respond rationally to high marginal rates, sometimes choosing to work less or restructure income to remain below the threshold."
Economists argue that such tax cliffs can reduce productivity and distort career decisions. Instead of simply rewarding merit or experience, the system may inadvertently incentivize artificial reductions in income.
The Broader Implications
The story of taking a pay cut to avoid the £100k trap also raises questions about the fairness and design of tax policy:
Are steep marginal rates discouraging growth or ambition?
Do such thresholds push workers to make financial decisions that may not align with their career goals?
How can policymakers design systems that are fair, predictable, and incentivize work without unintended consequences?
The anecdote is a reminder that tax systems are not just numbers—they affect real choices and lifestyles. Individuals respond logically to rules, sometimes in ways policymakers never intended.
Lessons for Workers
For those approaching high-income thresholds, the key takeaway is planning and awareness:
Understand the tax brackets and personal allowances to know when marginal rates spike.
Consider net income, not just gross salary, when evaluating promotions, bonuses, or job offers.
Explore alternatives such as pension contributions or charitable donations to reduce taxable income legally.
Consult a financial adviser to make strategic decisions that maximize take-home pay and long-term benefits.
Being proactive can help individuals avoid surprises and make informed career and financial choices.
Conclusion
The story of an individual taking a 25% pay cut to dodge the £100k tax trap illustrates a striking reality: tax thresholds can influence major life decisions, sometimes in counterintuitive ways. While it may seem unusual to sacrifice income intentionally, the choice is a rational response to a system that penalizes incremental earnings in a specific range.
Beyond the individual case, this scenario highlights broader discussions about tax fairness, incentives, and policy design. For workers, it’s a reminder that careful planning and understanding of the tax system can be just as important as career advancement or salary increases.
In the end, navigating the £100k tax trap isn’t just about numbers—it’s about strategy, foresight, and balancing ambition with financial sense. For some, earning less can indeed mean taking home more.