A record number of high-earning workers in the UK are set to be caught in a punishing tax trap, with official figures revealing a sharp rise in those facing an effective marginal tax rate of 60%.
The £100,000 'Tax Trap' Explained
New estimates from HMRC project that 2.06 million taxpayers will earn above £100,000 in the 2026/27 tax year. This represents around 6% of the UK's 34 million-strong workforce. The figure marks a significant increase of 112,000 people, or 5.7%, from the current year's estimate of 1.95 million. Back in 2021/22, the number stood at just 1.218 million, highlighting a rapid climb.
The issue stems from the tapering of the personal allowance for those earning over £100,000. For every £2 earned above this threshold, £1 of the tax-free personal allowance is lost. This mechanism creates an effective marginal tax rate of 60% on income between £100,000 and £125,140. When National Insurance contributions are included, the rate rises to approximately 62%.
A Generation of 'HENRYs' Emerges
Financial experts warn that frozen tax thresholds, combined with inflation, are creating a new class of financially squeezed professionals. Olly Cheng, senior financial planning director at Rathbones, commented on the phenomenon.
"Earning £100,000 once felt like financial freedom, but today it often comes with a hidden tax sting," said Cheng. "Frozen thresholds are inflating tax bills, dragging more people into higher bands, while inflation erodes the real value of earnings."
He described this group as HENRYs – 'High Earners, Not Rich Yet' – individuals on strong salaries who struggle to build wealth due to the dual pressures of a growing tax burden and the corrosive effect of inflation. "What was once considered a 'stealth tax' is now widely understood and much maligned," he added.
Navigating the Tax Burden
With the problem set to affect millions, financial planning becomes crucial. Cheng highlighted pension salary sacrifice as a key strategy for those whose workplaces offer it.
"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," he explained.
However, he noted that not all employers provide this option, making personal pension contributions a valuable alternative. The landscape is set to change again from April 2029, when a £2,000 salary sacrifice cap is due to take effect. This policy shift is expected to push more people towards managing their tax position and boosting retirement savings through private pensions.
The data underscores a significant shift in the UK's tax landscape, where a salary once associated with substantial financial comfort now brings a complex and heavy fiscal burden for a record number of households.
