HMRC is imposing an effective tax rate of up to 71% on some UK households, sparking concerns among personal finance experts about the growing financial strain on middle-income earners. The so-called £100,000 tax trap is leaving many individuals poorer despite earning higher salaries.
According to The Telegraph’s James Baxter-Derrington, successive policy changes from both Labour and Conservative governments have created a situation where “it no longer pays to earn £100,000.” The tax trap arises because, at this income level, the tax-free personal allowance begins to taper away, disappearing entirely by £125,140. This means that for every pound earned between these thresholds, 62p is effectively lost to income tax and National Insurance.
The consequence of this tax structure is stark: someone earning £100,000 faces a 71% effective tax rate, making it more financially advantageous to earn £99,999 than to increase their income up to £144,500. HMRC forecasts indicate a record two million people will fall into this tax trap during the 2026-27 tax year, a significant increase from 1.2 million five years prior.
In addition to income tax impacts, parents also lose childcare support as their income rises, adding tens of thousands of pounds in nursery fees. Many do not see improved financial benefit until their salary surpasses £145,000, reversing the negative effect of the tax trap.
Olly Cheng, senior financial planning director at Rathbones, highlights the broader issue: “Earning £100,000 once felt like financial freedom, but today it often comes with a hidden tax sting. Frozen thresholds are inflating tax bills, pushing more people into higher tax bands, while inflation erodes the real value of earnings.”
Cheng warns that this phenomenon—known as fiscal drag—has become a major contributor to the rising cost of living. “What was once considered a ‘stealth tax’ is now widely understood and much maligned,” he added, noting how it disproportionately affects “HENRYs” (High Earners, Not Rich Yet) who struggle to build wealth under this dual pressure of increasing taxes and inflation.