A growing number of workers are turning down bonuses and pay rises to avoid breaching the £100,000 income threshold, a tax trap that results in the gradual removal of the £12,750 tax-free personal allowance and affects eligibility for childcare support.
Workers Share Their Stories
Kate, a media professional and mother of two, told the Financial Times: "It was the last thing I wanted. I almost cried," describing her reaction to receiving an unexpected year-end bonus. "It had become a juggling act. The extra money pushed me to the brink of tears."
Within the £100,000 to £125,140 range, workers face an effective marginal tax rate of 62 per cent as allowances are withdrawn. Had her adjusted net income risen above £100,000, Kate said she would have lost access to 30 hours of weekly government-funded childcare, worth more than £10,000 per child, and her £4,000 in annual tax-free childcare support for her two children. "The relatively small bonus would have cost me thousands," she said.
Experts Criticise the System
Michael Healy, managing director for the UK and Ireland at IG Group, said: "The system is encouraging people to take their foot off the gas, and is clearly distorting behaviour. When people are financially better off rejecting a pay rise, it's a sign the system is fundamentally misaligned with basic economic incentives."
Stephanie Ebner, financial planning lead at Rathbones, described the threshold as "one of the most baffling quirks in our tax system". Healy added: "The cliff edge is actively anti-growth at a time when the UK can least afford it. When high-earning, mid-career professionals reduce hours or limit their earnings, it directly impacts productivity, labour supply and tax receipts."
