Thousands more UK workers are set to be pulled into the £100,000 tax trap as high earners brace for a further financial squeeze.
The number of Brits earning six-figure salaries is set to surpass two million for the first time according to estimates from HMRC obtained by Rathbones, leaving more high earners to face the £100,000 tax threshold.
Around six percent of the UK’s 34m strong workforce will earn above £100,000 in the 2026-27 tax year, a 5.7 per cent increase from the current tax year’s estimate of 1.95m.
The rise comes after Chancellor Rachel Reeves’ decision to freeze income tax thresholds until 2031, with many branding the move a “stealth tax”, in a bid to raise £11bn by the end of this Parliament.
Income tax thresholds have traditionally risen in line with inflation to ensure workers given pay rises to keep up with the cost of living aren’t yanked into higher bands.
The Office for Budget Responsibility stated the move would raise £8bn a year by 2029, but it exposes thousands to “punitive marginal rates” as well as the loss of key benefits including free childcare.
Upon a household member earning over £100,000 free childcare hours are stripped away, regardless of what another household member earns.
Last year, another 74,000 taxpayers were added to the punitive £100,000-£125,000 income bracket known as the tax trap, according to estimates obtained by City AM via Freedom of Information request, an increase of 12 per cent on last year and a near-doubling over five years to a total of 698,000.
HENRYs feel the pressure
The move has left High Earner Not Rich Yet individuals, known as HENRYs, to feel an even greater squeeze.
Henrys, who are generally classed as professionals earning around £100,000 or more and often have little savings or fewer assets, have seen Rachel Reeves’ Budget decisions fall disproportionately on them.
High earners between £100,000 and £125,140 are taxed more heavily as the personal allowance of £12,570 goes down for every pound extra earned above the threshold.
Olly Cheng, senior financial planning director at Rathbones, said: “Earning £100,000 once felt like financial freedom, but today it often comes with a hidden tax sting.
“Frozen thresholds are inflating tax bills, dragging more people into higher bands, while inflation erodes the real value of earnings.
“This has created a generation of HENRYs – high earners, not rich yet – where those on strong salaries struggle to build wealth because of the double hit of a growing tax burden and the corrosive effect of inflation.”
Beating the tax trap
While more people are set to cross the threshold, there are ways to reduce the impact.
Cheng said: “One of the simplest ways to avoid or limit the impact of the 60% income tax trap is to pay more into your pension.
Doing so via salary sacrifice not only saves on income tax but also National Insurance for both employee and employer, making it a more tax-efficient way to boost pension savings compared to personal contributions.”
But not every workplace offers salary sacrifice so personal contributions remain a valuable option, while a £2,000 cap is set to take effect from April 2029, meaning private pensions will become increasingly critical for managing tax positions.
Donating to charity can also reduce your income tax bill, with gift aid contributions lowering adjusted net income just like pension payments.
Some workplaces also allow the use of salary sacrifice to make charitable contributions in exchange for non-cash benefits which also reduce net income.