New official forecasts have revealed a stark financial squeeze facing Britain's higher earners, with a record two million people expected to be caught in a punitive 62% effective tax rate within the next few years.
The Growing Burden of Fiscal Drag
According to data obtained from HM Revenue and Customs via a Freedom of Information request, two million individuals are projected to fall into the £100,000 "tax trap" during the 2026-27 tax year. This represents a significant increase, with an extra 112,000 people forecast to earn above the £100,000 threshold in the coming year alone.
The issue stems from a combination of frozen tax thresholds and the gradual withdrawal of the personal allowance. For every £2 earned over £100,000, individuals lose £1 of their £12,570 tax-free personal allowance. This creates an effective marginal tax rate of 60% for income tax, which, when combined with a 2% National Insurance contribution, results in a total rate of 62% on earnings between £100,000 and £125,140.
Expert Warnings and Economic Consequences
Financial experts are sounding the alarm, warning that this stealth tax rise could have severe unintended consequences for the UK economy and public finances. Rob Lewis of Celtic Financial Planning expressed deep concern, stating it is his primary worry. "High earners could do their job anywhere," he said. "How many millionaires will leave the country? I’ve had more discussions with clients about leaving to places like Dubai to get more value for money."
Lewis warned of a counterproductive outcome: "People who put the most money into the coffers are leaving, so although taxes have increased, we’ll get less revenue."
Olly Cheng from wealth manager Rathbones, which submitted the FOI request, identified "fiscal drag" – where tax thresholds remain static while wages rise with inflation – as a major driver of the cost-of-living crisis for these households. He highlighted the scale of the increase: "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."
A Looming Shock for Families and Professionals
Cheng emphasised that the impact would be particularly acute for certain groups. "For families with young children, this will be particularly painful," he noted. He also pointed to the imminent "bonus season" as a potential trigger for financial shock. "What looks like a reward can quickly turn into a tax shock," he added.
The mechanics of the trap mean that the punitive 62% rate only reverts to the standard 45% additional rate once an individual's entire personal allowance has been eroded, which occurs on income above £125,140.
The Private Office, a financial advisory firm, provided a clear example to illustrate the trap's impact:
- An individual with annual earnings of £100,000 receives a £20,000 bonus.
- A significant portion of that bonus will be taxed at the effective 62% rate, drastically reducing its net value.
This growing fiscal pressure on a key segment of the workforce raises serious questions about talent retention, economic competitiveness, and the long-term sustainability of tax revenues, as professionals and business owners may seek more favourable regimes abroad.
