24 October 2025 

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    5 minutes

Are you subject to the 67.5% tax trap in Scotland?

Medics Financial planning Tips Dentists

Introduction

Understanding the UK tax system can be challenging, especially when unexpected ‘tax traps’ emerge. Here, we delve into the 67.5% rate that can occur when you’re a higher earner in Scotland – from how it works to ways you can avoid it.

Tax treatment depends upon your individual circumstances and may be subject to change in the future.

What is the 67.5% tax trap?

If you’re a Scottish taxpayer earning between £100,000 and £125,140, you may be hit by the 67.5% tax trap. While this rate isn’t explicitly stated in tax law, it occurs as the result of the following factors:

  1. Personal allowance withdrawal – For every £2 you earn over £100,000, you lose £1 of your personal allowance (the portion of your income you can earn tax-free). This tapering continues until your income reaches £125,140, at which point the allowance disappears completely.
  2. Scottish Advanced Tax Rate – For the 2025/26 tax year, the Scottish Advanced Tax Rate is 45%. It applies to the portion of your income between £75,001 and £125,140.

For example, if your income increases from £100,000 to £110,000, the extra £10,000 of income is taxed at the advanced rate of 45%, costing you £4,500 in tax.

Earning £10,000 over the £100,000 threshold also means your personal allowance is reduced by £5,000 - £1 for every £2.

What’s more, this £5,000 of previously untaxed income is now subject to tax at the same 45% rate, costing you an additional £2,250.

So, the combined tax on the extra £10,000 is £4,500 + £2,250 = £6,750 – or 67.5%.


Beating the 67.5% tax trap

The good news is that there are some legitimate ways to avoid the 67.5% tax trap, but they do require careful planning. Here are some strategies you can explore to bring your taxable income below £100,000:

Boost your pension contributions

One of the simplest and most tax-efficient ways to avoid the 67.5% tax trap is to pay more into your pension. Contributions to a registered pension scheme reduce your taxable income, which can help restore some or all of your personal allowance.

For example, if your income is £110,000 and you contribute £10,000 into your pension, your taxable income falls back to £100,000 – therefore reinstating your full personal allowance.

You may also be able to ‘carry forward’ any unused pension allowances from the last three tax years, provided you were a member of a qualifying pension scheme during that time.

Salary sacrifice and company pension planning

If you're an employed practice owner or co-owner, salary sacrifice and company pension contributions can be useful tools for reducing your taxable income and optimising your overall remuneration strategy.

By using salary sacrifice, you agree to exchange part of your salary for an equivalent employer pension contribution. This contribution is made before tax and national insurance are applied, meaning both you and your practice save on NI costs while increasing your pension pot.

If you operate as a limited company, employer contributions can also qualify for corporation tax relief – provided they are made wholly and exclusively for the purposes of the business. This effectively reduces your company’s taxable profits while boosting your long-term retirement savings.

For partners who are self-employed, salary sacrifice doesn't apply, but personal pension contributions can still offer valuable tax relief and form a key part of your financial planning.

 

Gift Aid donations

Making Gift Aid donations to UK-registered charities is another way to reduce your adjusted net income and potentially restore your personal allowance.

Under the Gift Aid scheme, your donation is treated as if basic rate tax (20%) has already been deducted. The charity can then claim this 20% back from HMRC, increasing the value of your gift at no extra cost to you.

If you’re a higher or additional rate taxpayer, another benefit is that you can claim back the difference between your tax rate and the basic rate. So, more of your income is taxed at the lower rate, reducing the amount of higher-rate tax you pay overall.

You also have the option to ‘carry back’ Gift Aid donations to the previous tax year, provided you make the donation and elect to carry it back before submitting your self-assessment tax return.

Transfer income or assets to your spouse

If your spouse or civil partner is in a lower tax band, there may be opportunities to structure your finances more efficiently and reduce the overall tax liability for your household.

For practice owners, one option is to share practice profits more effectively – for example, by employing or spouse or partner in a genuine role within the business and paying them a reasonable wage for the work they do. This shifts part of your income into their name, making use of their personal allowance and potentially lower tax bands.

Alternatively, you could transfer certain investments or rental properties to them, allowing income from these assets to be taxed at their lower rate. This can be a particularly beneficial for passive income streams such as dividends or rental income.

Maximising your ISA allowance

While ISAs don’t reduce your taxable income (and therefore don’t directly help you avoid the 67.5% tax trap), making full use of your annual £20,000 allowance can play an important role in your wider financial planning.

In doing so, you can keep your savings and investments free from tax on dividends, interest and capital gains. This means your returns stay fully yours, and your investment income is less likely to push you over key tax thresholds – such as the £100,000 limit where your personal allowance begins to reduce.

Remember, investments can go down as well as up and you may get back less than you invest.

Get personalised advice

Discover how to structure your earnings and investments more efficiently with support from Wesleyan Financial Services. Simply book an appointment with a Specialist Financial Adviser today. Advice charges may apply.