A £100,000 salary was once a considerable sum, reserved for ultra-high earners. Inflation and wage growth over time have seen more UK workers earning six-figure sums, and now, according to FT Adviser, that number is set to surpass two million for the first time.
While good news on the surface, a salary that exceeds £100,000 could open you – or your HENRY (high earner, not rich yet) children – to the 60% tax trap.
Thankfully, professional financial advice and careful planning can help to mitigate this trap.
Keep reading to find out how.
The number of UK workers earning more than £100,000 is on the rise… with potentially significant ramifications for tax
FT Adviser figures confirm that around 6% of the UK’s 34 million workers are set to earn more than £100,000 in the 2026/27 tax year.
Just 1.2 million earned this amount as recently as 2021/22.
The rise, though, comes at a time when fiscal drag (resulting from frozen tax thresholds) is pushing more workers into the tax system for the first time, as well as forcing higher earners over the threshold into the higher- and additional-rate tax brackets.
A £100,000 salary that might once have brought financial freedom could now come with a huge tax bill and even the loss of some benefits, such as childcare support.
The so-called “60% tax trap” could see you heavily taxed on income between £100,000 and £125,140
Since 2021, the UK’s Personal Allowance – the amount you can earn before tax becomes payable – has been frozen at £12,570. It is set to remain at this level until at least 2031.
However, once your annual income exceeds £100,000, you trigger a tapering of the Personal Allowance, decreasing by £1 for every £2 of earnings above the £100,000 threshold.
Earnings between £50,270 and £125,140 are typically liable for the higher rate of Income Tax (40% as of 2025/26).
If your income is between £100,000 and £125,140, you pay 40% on your earnings, but your lost allowance is also taxed at this marginal rate. This creates an effective tax rate of 60%.
Say you earn £110,000. You are £10,000 above the threshold for the tapering of the Personal Allowance, and that £10,000 will be taxed as follows:
- 40% of £10,000 (£4,000).
- 40% of your lost allowance of £5,000 (£2,000).
The total tax paid on your £10,000 is £6,000 (or 60%).
Once your income reaches £125,140, the taper reduces your Personal Allowance to zero, and you are pushed into the additional-rate tax bracket of 45%.
Different Income Tax rates apply in Scotland, meaning that the effective rate could be even higher. The above figures apply to England, Wales, and Northern Ireland.
Higher earnings could see HENRYs miss out on valuable childcare support worth thousands
Alongside the 60% tax trap, those earning more than £100,000 who also have a young family could lose valuable childcare benefits.
In England, parents of children aged nine months to four years are generally entitled to 30 free hours of childcare a week, provided both parents are working and earn between the minimum wage for 16 hours a week and £100,000.
While both parents can earn £99,000 and still receive the free hours, if one partner earns just £100,001, the hours can no longer be claimed.
Instead, you would only be eligible for 15 free hours a week, specifically for children aged between three and four.
According to Investors’ Chronicle, if one parent on £99,000 a year received a £5,000 pay rise, the resulting tax rise and loss of childcare support would see the household around £13,000 worse off.
Separate childcare funding schemes exist in Wales, Scotland, and Northern Ireland, with different rules and eligibility criteria.
Professional financial advice and planning can help you to mitigate the tax impact of a £100,000-plus salary
One way to avoid the 60% tax trap might be through philanthropy. As a higher- or additional-rate taxpayer, donating to charity could increase your take-home pay, as you can claim the difference between the higher rate and basic rate on your donation. Reducing your adjusted net income could help you to keep more of your Personal Allowance or retain the full 30 hours of childcare support.
Donating via payroll giving allows you to donate before tax, decreasing your Income Tax bill and thereby increasing your take-home pay.
Salary sacrifice schemes can also reduce your net income by deducting pension contributions from your pre-tax salary, reducing the Income Tax and National Insurance (NI) you pay.
It’s worth noting here that NI-efficient salary sacrifice contributions will be effectively capped at £2,000 from 2029. Once the change comes into effect, the above charitable donation strategy might be even more appealing.
Claiming the higher rate of pension tax relief on your contributions also lowers your adjusted net income, although this depends on how your pension scheme is set up. Other employee benefits could also lower your net income, but not all will, so it’s worth seeking advice or speaking to your employer.
Whether you or a loved one is close to or currently caught in the 60% tax trap, financial advice can help to create a tax-efficient plan that allows you to live the lifestyle you want to live now, while saving for a dream future.
Get in touch
As UK wages rise and thresholds remain frozen, fiscal drag could see your and your loved ones’ tax bills increase. But financial advice can help.
If you want help navigating the 60% tax trap, get in touch with HFMC Wealth today. Contact us online or call 020 7400 4700 today to help plan your loved ones’ financial future.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
