The number of UK workers earning six-figure salaries is set to surpass two million for the first time, pulling more employees into the £100,000 tax trap, according to new HMRC estimates obtained by Rathbones, one of the UK’s leading wealth and asset management groups.
Figures from a Freedom of Information request show HMRC estimates that 2.06 million taxpayers - around 6% of the UK’s 34 million workforce* - will earn above £100,000 in the 2026/27 tax year. This represents a 5.7% increase, or 112,000 people, on the current tax year’s estimate of 1.95 million and is up from 1.218 million in 2021/22.
This rise comes against the backdrop of a growing tax burden caused by frozen income tax thresholds - recently extended to April 2031 - which are pulling more earners into higher tax bands as wages increase over time, exposing thousands to punitive marginal rates and the loss of key benefits, such as childcare support
The increasing pressure on those earning £100,000 has given rise to the moniker of HENRYs – high-earner, not rich yet – as those with good salaries feel the cost of living squeeze.
Olly Cheng, Senior Financial Planning Director at Rathbones, says: “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.
“Fiscal drag has become one of the most damaging factors affecting the cost of living. What was once considered a ‘stealth tax’ is now widely understood and much maligned. By 2028/29, nearly 2.3 million taxpayers are expected to earn above £100,000 - almost half a million more than the estimate for the current tax year - and for families with young children, this will be particularly painful. With bonus season approaching, what looks like a reward can quickly turn into a tax shock.”
Why this matters for taxpayers
The £100k tax trap: Crossing £100,000 triggers the tapering of the personal allowance, creating an effective marginal tax rate of 60% (around 62% including National Insurance) between £100,000 and £125,140.
Childcare cliff-edge: Parents earning just £1 over £100,000 can lose childcare support worth almost £20,000 for two children under five.
Fiscal drag effect: With thresholds frozen until 2031, more earners will be dragged into higher bands even without significant pay rises. Since thresholds were frozen in 2021, the number of £100,000+ earners is expected to rise by 69%, by April 2027, pulling thousands into the 60% marginal tax zone.
Key findings
Top-end acceleration: The number of individuals earning £120,000 or more is projected to increase by 100,000 to reach 1.4 million in 2026/27 - a 7.7% rise from the current tax year’s estimate - marking the fastest growth of any income bracket.”£100,000 tax trap widens: Those earning £100,001–£110,000 projected to rise by 5.4% to 374,000. The number of taxpayers earning £100,000 is expected to almost double, rising from 1.218 million in 2021/22 to 2.293 million by 2028/29.
Three ways to beat the £100,000 tax trap
Olly Cheng explores ways to reduce the impact of the £100,000 tax trap:
Private pension contributions and salary sacrifice
“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. However, not every workplace offers salary sacrifice, so personal pension contributions remain a valuable option. And with the £2,000 salary sacrifice cap set to take effect from April 2029, more people will rely on private pensions to manage their tax position and boost retirement savings.”
Gifts to charity
“Donating to charity not only supports good causes but can also help reduce your annual tax bill. Gift Aid contributions lower your adjusted net income, just like pension payments do. If your workplace permits it, you can also use salary sacrifice to make charitable contributions or exchange part of your salary for non-cash benefits, such as private medical insurance, which further reduces your adjusted net income. National Insurance savings apply here too.”
Share loss relief
“If you subscribed for qualifying shares - such as those in an Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) company - and they fall in value, you can elect to offset the loss against your income rather than capital gains. This means the loss reduces your taxable income at your marginal rate, which for higher earners can potentially save a significant amount in tax.”
|
