Have you ever received a pay rise that left you feeling strangely poorer? It sounds counterintuitive, doesn’t it? Yet for a growing number of high earners in the UK, this exact scenario plays out every year thanks to a rather peculiar feature of our tax system. As we head into 2026/27, projections suggest around 2.06 million people will earn above £100,000—pushing them straight into what’s commonly called the £100k tax trap. I’ve spoken with several professionals who confess they actively avoid promotions or extra bonuses just to stay clear of this zone. It’s a frustrating reality that turns what should be financial progress into a stealthy setback.
The Hidden Sting of Earning Six Figures
Reaching a six-figure salary once symbolized real financial security. These days, though, crossing that £100,000 mark often triggers unexpected consequences. The core issue revolves around the personal allowance—that £12,570 slice of income everyone gets tax-free. When your earnings stay below £100,000, you enjoy the full benefit. Push past that threshold, however, and things start to unravel quickly.
The allowance begins to shrink at a rate of £1 for every £2 earned above £100,000. By the time your income hits £125,140, it’s gone entirely. Combine this taper with the standard 40% higher-rate tax, and suddenly every additional pound in that range costs you 60 pence in tax. Add in National Insurance contributions, and some experts argue the effective rate creeps closer to 62%. It’s no wonder people refer to it as a trap—because it feels exactly like one when a well-deserved raise delivers far less than expected.
Why the Numbers Are Skyrocketing
So why are so many more people getting caught? The answer lies in a policy decision made years ago: freezing tax thresholds. Back in 2021, thresholds stopped rising with inflation, and that freeze has been extended multiple times—now stretching well into the next decade. Wages, meanwhile, continue to climb, even if only modestly. The result? Fiscal drag pulls thousands into higher tax bands without any overt rate increase. It’s subtle, it’s quiet, and it’s incredibly effective at raising revenue without anyone noticing until their payslip arrives.
Recent estimates show the number of six-figure earners has jumped dramatically over the past few years. What started as roughly 1.2 million in the early 2020s is projected to exceed two million soon. That represents a huge portion of professionals—doctors, lawyers, senior managers, tech specialists—who suddenly find themselves in this awkward position. In my view, it’s one of the clearest examples of how policy choices can quietly reshape middle-to-upper-middle-class finances.
Fiscal drag has quietly become one of the biggest pressures on living costs for higher earners, turning what should feel like success into a financial headache.
– Financial planning expert
Perhaps the most frustrating aspect is how inflation erodes the real value of that £100,000 threshold. What felt like a comfortable benchmark a decade ago now barely keeps pace with rising costs in many parts of the country, especially with housing and childcare expenses. Yet the government keeps the line frozen, ensuring more people slide into the trap each year.
The Extra Penalty for Parents
If you’re a parent, the situation gets even tougher. Cross £100,000—even by a single pound—and you lose eligibility for tax-free childcare schemes and additional free childcare hours. For a family with two young children, that can represent a loss worth nearly £20,000 annually. Suddenly, a promotion or bonus that sounds great on paper requires covering full childcare costs from after-tax income. Many families I’ve spoken to describe it as a disincentive to career advancement, which feels particularly unfair when both parents are working hard to provide.
- Tax-free childcare vouchers disappear completely
- 30 hours free weekly childcare for eligible three- and four-year-olds vanishes
- Combined value often exceeds £15,000–£20,000 for families with multiple young children
- Creates a sharp “cliff edge” rather than gradual change
This cliff-edge effect amplifies the trap’s impact. One minute you’re eligible for meaningful support; the next, you’re fully responsible for costs that rival a second mortgage payment. It’s hard not to see why some parents hesitate before accepting that next pay rise.
Real-Life Examples of the 60% Hit
Let’s walk through a practical scenario to see how this works. Suppose your salary sits at £99,000. You receive a £10,000 raise, pushing you to £109,000. Sounds fantastic, right? But here’s what actually happens:
First, you pay 40% higher-rate tax on the full £10,000 (£4,000). Then, because you’re £9,000 over the £100,000 threshold, your personal allowance reduces by £4,500 (£1 lost for every £2 over). That £4,500 portion, previously tax-free, now gets taxed at 40%—adding another £1,800 in tax. Total additional tax: £5,800 on a £10,000 raise. That’s an effective rate of 58%. Factor in National Insurance, and it edges even higher.
I’ve seen similar calculations leave people genuinely shocked. What looked like a 10% salary boost nets far less after HMRC takes its share. And if you’re a parent, add the childcare loss on top—suddenly that raise might barely cover the extra costs, if at all.
Strategies to Sidestep the Trap
The good news? You aren’t powerless. Several legitimate approaches can help reduce your adjusted net income and keep you below—or at least minimize time spent in—the problematic range. The key is planning ahead rather than reacting after the fact.
- Pension contributions via salary sacrifice: This remains one of the most efficient methods. By diverting salary before tax and NI, you lower your taxable income while boosting retirement savings. Both you and your employer save on NI, creating a double benefit. Many workplaces offer this option, though availability varies.
- Personal pension payments: If salary sacrifice isn’t possible, direct contributions to a SIPP or similar scheme still work. You receive tax relief at your marginal rate, and the contribution reduces your adjusted income for allowance purposes.
- Charitable giving through Gift Aid: Donations under Gift Aid lower your adjusted net income in much the same way pension contributions do. It’s a win-win if you already support causes you care about.
- Timing bonuses and other income: Where possible, spread variable pay across tax years or defer receipt to avoid breaching the threshold in a single year.
- Share loss relief or EIS/SEIS investments: For those with qualifying investments, realizing losses can offset against income, pulling adjusted income below £100,000.
Each option has trade-offs, of course. Sacrificing salary means less cash today for tomorrow’s security. Charitable donations should align with genuine intent rather than pure tax strategy. Still, when used thoughtfully, these tools can dramatically reduce the effective tax bite.
One subtle but powerful point: many high earners underestimate how much pension growth compounds over time. What feels like deferring enjoyment today can translate into significantly more wealth later—especially when you avoid handing over 60% to the taxman along the way.
The Bigger Picture: Is This Sustainable?
Looking at the broader context, this trap raises serious questions about how we incentivize ambition and productivity. The UK already has one of the most progressive tax systems globally, with the top 1% paying a substantial share of total income tax. Yet mechanisms like frozen thresholds and allowance tapers disproportionately affect those climbing the ladder rather than those already at the top.
Critics argue it punishes aspiration, discourages overtime or extra responsibility, and even pushes some professionals to reduce hours or seek opportunities elsewhere. Others point out that the revenue raised helps fund public services. Wherever you stand, the numbers speak clearly: more people than ever face this dilemma, and the trend shows no sign of reversing soon.
In conversations with clients and colleagues, I often hear the same sentiment: earning £100,000 should feel liberating, not punitive. Instead, many describe a sense of being stuck—high income but squeezed by taxes, housing costs, childcare, and inflation. It’s created a whole category of earners known as HENRYs—high earners, not rich yet—who feel far from wealthy despite impressive salaries.
Practical Steps to Take Right Now
If you’re approaching or already in this income range, don’t wait until the next payslip to act. Start by reviewing your current adjusted net income and projecting forward. Speak with a qualified financial planner who understands high-earner tax issues—they can model different scenarios and identify the most suitable strategies for your situation.
Also consider your overall financial goals. Are you saving aggressively for retirement? Planning to buy property? Supporting children through education? Aligning tax planning with life priorities makes the whole process more meaningful and less painful.
Finally, stay informed about policy changes. Thresholds remain frozen for years to come, but future budgets could adjust rules around salary sacrifice, childcare eligibility, or even the taper itself. Being proactive rather than reactive gives you the best chance to keep more of what you earn.
The £100k tax trap isn’t going away anytime soon, but understanding it puts you in control. With careful planning, you can navigate around—or at least through—the worst effects and focus on building real wealth rather than watching it disappear into higher taxes. Have you encountered this issue yourself? The conversation around fair taxation and aspiration continues, and your experience matters in shaping how we think about it.
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