How NHS Doctors Can Avoid the 60% Tax Trap in 2025

How Can You Legally Beat the 60% Tax Trap As a Doctor or NHS staff?

Many GPs, Consultants and Senior NHS staff will get caught in the 60% tax trap without realising it. This happens when your earnings fall between £100,000 and £125,140, significantly reducing your tax-free personal allowance.

Your Tax-Free Personal Allowance

The standard tax-free personal allowance in the UK is £12,570, which is the income you do not have to pay tax on.

What’s the 60% Tax Trap?

The 60% tax trap affects UK taxpayers who earn between £100,000 and £125,140. This occurs because the standard personal allowance of £12,570 starts to decrease for incomes over £100,000. Specifically, for every £2 you earn above £100,000, you lose £1 of this allowance until it reaches £0 at £125,140. As a result, individuals in this bracket effectively face a 60% tax rate on part of their earnings, significantly increasing their tax bill and reducing their take-home pay.

By midnight on April 5, the chance to fix this for the tax year will be gone—at least for this tax year. Falling into the 60% trap could mean you pay a lot more tax than you need to, affecting your take-home pay and costing you money that could have been used for investing for retirement.

Take Dr. Tim (name changed), for example. Dr. Tim, an NHS GP, discovered in a recent 1:1 Moneywise Doctor Financial Insight session that he was very close to falling into this trap without even knowing it. Thankfully, he acted swiftly, implementing strategies to navigate the trap just before the tax year ended, saving him a few thousand pounds!

What is the 62% Tax Trap?

You may also have heard about the 62% tax trap. It is not much different; it just factors in the National Insurance rate.

Some doctors might think the highest rate of income tax payable is 45%, combined with a 2% National Insurance rate, giving an effective tax rate of 47%. However, Consultants and GPs could face an effective combined tax rate of 62% if they earn over £100,000. The 62% tax trap affects incomes between £100,000 and £125,140, where the employed or self-employed effectively experience a 60% income tax rate alongside 2% National Insurance contributions. This occurs because, for every £2 you earn over £100,000, you lose £1 of your £12,570 personal allowance. The tax rate is reduced to an additional rate of 45% only after your entire personal allowance has been eroded, i.e., on income above £125,140.

An example of the 62% Tax Trap

Imagine an NHS Consultant earning £100,000 per year in their usual job but an additional £20,000 through locum and private work, totalling £120,000 per year.

Is £120k a Good Salary in the UK?

Earning £120,000 per year in the UK is considered a high income. It places you in the top 2% of earners, offering a comfortable lifestyle with opportunities for savings and investments. However, the tax implications are significant, especially with potential exposure to the 60% tax trap. Effective tax planning is essential to maximize your take-home pay.

From this additional income:

→ £8,000 is immediately lost to the standard 40% higher rate tax.

→ The personal allowance reduces from £12,570 to £2,570, with £10,000 of the allowance lost.

→ This additional £10,000 is taxed at 40%, equating to a further £4,000 in income tax.

→ National Insurance on the bonus at 2% above the higher rate threshold of £50,270 adds another £400.

The result is an effective tax rate of 62%, leaving the individual with £7,600 from their £20,000 bonus.

Mitigating the 62% Tax Trap

You can employ similar strategies to reduce the impact of the 60% or 62% tax trap. Consider increasing your pension contributions. This reduces your ‘adjusted net income’ and helps lower your tax liability. You can navigate these tax challenges effectively by planning and optimising your finances. Below, we have listed ten (10) areas for doctors to consider to mitigate the impact of the 60% tax trap.

How Can Doctors and NHS Staff Beat the 60% Tax Trap?

To beat the 60% tax, here’s a 10-point checklist:

1. Increase Pension Contributions:

Doctors and healthcare professionals can lower their taxable income by increasing their pension contributions, for which they get tax relief. The annual allowance is a substantial £60,000. Topping up your private pension to get the maximum £60,000 (or the maximum you can afford to spare) is one of the easiest ways to legally avoid the 60% tax trap.

2. Charitable Donations:

Donating to charities that support worthwhile causes may reduce your taxable income. Whether you donate to a national charity, your local charity, or a religious organisation, the most important thing to check is that the organisation is registered in the UK as a charity. You may search the charity register here

3. Consider Using Your Full ISA Allowance:

You may consider maximising your £20,000 ISA allowance annually for tax-free savings. This does not directly reduce your taxable income via your job but can reduce your income through savings and investments. Capital gains and dividends in a Stock and Shares ISA are tax-free, as are interest in a Cash ISA.

If you want a clear, jargon-free explanation of Individual Savings Accounts (ISAs), read my detailed article here:

4. Capitalise on Capital Gains Allowance:

Use your £3,000 allowance to sell off non-ISA-protected investments profitably. This allowance has been reduced from £6,000 to £3,000 since April 6, 2024.

5. Utilise Dividend Allowance:

Take advantage of the £500 tax-free dividend allowance. This allowance has been reduced from £1,000 to £500 since April 6, 2024.

6. Claim All Eligible Tax Deductions:

Don’t forget to claim deductions on professional expenses and work-related costs. Download a free guide with this link if you need a step-by-step guide to claim your professional expenses as a doctor, dentist, nurse, physiotherapist, or other NHS professional.

7. Review Your Tax Code and Calculate Your Take Home:

Ensure your tax code accurately reflects your situation to prevent over or underpayment of tax. If you are unsure of the impact of paying more into your pension, you can use the free NHS Salary Calculator to work out your take-home pay after PAYE tax, NIN, and pension deductions. Here is a link to the NHS Salary Calculator.

8. Gift Wisely:

Consider using your £3,000 annual gift allowance to reduce potential future inheritance tax liabilities.

9. Restructure Your Income:

Check if you can spread out your income. Sometimes, taking less income one year and more the next can be beneficial. Before doing this, it may be helpful to consult a specialist accountant or tax planner.

10. Consult a Specialist Tax Accountant:

Get tailored advice for your situation. You can find specialist accountants vetted by our team at the Moneywise Doctor to support you, especially if your tax situation is complex or if you need further detailed advice or guidance on how doctors can avoid the 60% tax trap.

What Can Doctors Claim Tax Back On?

Doctors, nurses and NHS professionals can claim tax back on several work-related expenses, including:

1. Professional Fees and Subscriptions: Fees for memberships in professional bodies like the General Medical Council (GMC), British Medical Association (BMA) and Medical Defence Union
2. Work-Related Training: Courses and conferences relevant to your job.
3. Uniform and Work Clothing: Costs for maintaining uniforms or protective clothing.
4. Mileage and Travel Expenses: Travel expenses for work-related journeys, not including regular commutes.
5. Equipment and Tools: Necessary equipment for your work.

Here’s a link to a detailed step-by-step guide that walks you through the process of claiming tax relief on your expenses. Thousands of doctors have found it helpful in claiming back on their tax relief.

Have You Fallen Into the 60% Tax Trap? Which of these steps will you take to mitigate it?

Use the NHS Salary Calculator to work out your take-home pay after PAYE tax, NIN, and pension deductions.