A couple with a combined income exceeding £225,000 have described feeling "broke" and unable to afford starting a family, blaming a "brutal" and little-understood tax trap set by HM Revenue and Customs (HMRC).
The £100,000 Cliff-Edge: How The Trap Works
Matthew and Nicola Griffiths, who live near Brighton, both work in the lucrative technology sector. Matthew earns a salary of £125,000, while his wife Nicola brings in approximately £100,000 annually. They further supplement their income by running several Airbnb holiday lets, which in a successful year can generate an additional £80,000 to £100,000.
However, their financial planning was upended by two critical thresholds in the UK tax system. Once a parent's income reaches £100,000, they immediately lose entitlement to tax-free childcare support, worth up to £2,000 per child each year.
Simultaneously, a separate mechanism begins: the personal allowance – the amount of income you can earn tax-free – is reduced by £1 for every £2 earned above £100,000. This allowance vanishes completely once earnings hit £125,140. The combination of income tax and National Insurance contributions, alongside the withdrawal of the personal allowance and childcare support, creates what experts call a "cliff-edge" producing an effective marginal tax rate of 62% on income within this band.
"We're Earning Good Money But Are Broke"
"We realised it wasn’t just us," Matthew Griffiths told reporters. He explained that conversations with friends in similarly high-earning professions like law and accountancy revealed a shared experience of financial strain despite substantial salaries.
The couple highlighted the intense pressure this creates for families. "It’s a big thing when you have a child," they said, "but when you’re under significant financial pressure that you didn’t know was coming, it can make it much harder when you’re lacking sleep and you’re trying to keep up a high-pressured career."
Matthew identified a common pitfall: "The first big mistake people make is that they don’t investigate ways to solve it; they just take the 62% marginal tax rate and pay the full price for childcare fees."
Pension Planning and Drastic Measures
The Griffiths suggest that strategic financial planning is essential to mitigate the impact. "Sometimes your take-home pay can be significantly better if you overpay your pension," Matthew advised, emphasising that "Putting money into your pension is not money gone – it’s money for future you."
Their story echoes concerns from other professionals caught in the same trap. Another high-earner told how fluctuating income from bonuses, combined with tax thresholds, childcare costs, and mortgage pressures, is forcing severe lifestyle compromises. "We’re having to make big financial decisions just to stay afloat, including potentially moving to a smaller home," they admitted.
For the Griffiths, the situation remains precarious. They warned that should interest rates remain high, they face a "significant jump" in mortgage costs, leading to a "major cash flow squeeze." In such a scenario, downsizing their home – an action they label "absurd" given their earnings – could become a grim necessity.
