Imagine earning a six-figure salary, only to discover that a staggering portion of your hard-earned income vanishes into the taxman's pocket. This is the reality for a growing number of workers in the UK, as a record-breaking 2.06 million people—6% of the workforce—are set to earn over £100,000 this tax year, according to HM Revenue & Customs. But here's where it gets controversial: while this surge reflects strong wage growth, it also means more individuals are falling into the dreaded £100k tax trap.
This trap isn’t just about paying higher taxes; it’s about the marginal tax rate—the tax on your next pound earned—skyrocketing to an eye-watering 60% (or 62% including national insurance) for those earning between £100,000 and £125,140. And this is the part most people miss: as your income creeps above £100,000, your tax-free personal allowance starts to shrink, disappearing entirely by £125,140. Add student loan repayments of up to 9% for graduates, and someone earning £100,000 could effectively take home just 29p for every extra £1 they earn—a marginal tax rate of 71%.
Many of these high earners jokingly refer to themselves as Henrys—High Earners, Not Rich Yet—a term that highlights the disconnect between their income and their financial reality. But the pain doesn’t stop at taxes. Young families face an even harsher cliff edge: if one parent earns over £100,000, they lose access to 30 hours of government-funded childcare per week, adding another layer of financial strain.
Olly Cheng from wealth manager Rathbones, which uncovered these figures through a freedom of information request, notes that while the rise in six-figure salaries signals wage growth, especially post-pandemic, it’s tempered by high inflation eroding the real value of income. Here’s the kicker: income tax thresholds are frozen until 2031, meaning more workers will be dragged into higher tax bands, even if their wage increases barely keep pace with inflation. For example, someone earning £85,000 in 2019-20 with 4% annual wage growth would cross the £100,000 threshold by 2024-25, but this growth is essentially just inflation—not a real increase in prosperity.
So, what’s the solution? Experts suggest strategies like pension contributions, salary sacrifice schemes, or charitable donations to reduce taxable income. But the bigger question remains: Is it fair for the tax system to penalize those who earn slightly more, especially when inflation and frozen thresholds are already squeezing their finances? Let us know your thoughts in the comments—do you think the £100k tax trap is a necessary evil, or is it time for a rethink?
