'Henrys' braced for harsher Budget as analysts warn effective tax rate could exceed 60%

"Typically consisting of mid-career professionals and dual-income households with limited accumulated wealth or assets, Henrys are often caught in what experts call the UK's "stealth tax trap". This group is already disproportionately affected by frozen tax thresholds, reductions in childcare support and penal cuts to personal allowances once income exceeds £100,000. Under current rules, workers earning between £100,000 and £125,140 lose £1 of their £12,570 personal allowance for every £2 earned above the £100,000 threshold, creating a marginal tax rate of roughly 60%."

"Hargreaves Lansdown notes that many Henrys also lose access to government-funded childcare once their income crosses £100,000 - adding thousands of pounds to annual household costs that lower earners do not incur. With wage inflation continuing, analysts warn that an extension of the existing income tax threshold freeze - widely expected to feature in Rachel Reeves' November Budget - will drag more professionals into this high-tax band."

High-earning professionals earning just above £100,000 face sharply higher effective tax rates because personal allowances taper away between £100,000 and £125,140, creating an approximate 60% marginal rate. Many lose access to government-funded childcare when income crosses £100,000, increasing household costs. Wage inflation and a freeze in income tax thresholds are expanding the number of people pushed into higher tax bands, with the additional-rate taxpayer count more than doubling since 2022. Proposed reforms such as a flat 20% pension tax relief would reduce the benefit of salary sacrifice for higher-rate taxpayers and could raise significant revenue.

Read at Business Matters