Millions of British workers are being drawn into a punitive tax system that effectively charges them at marginal rates of up to 62%, new analysis reveals.
The Growing Tax Trap
According to investment manager Rathbones, 2.3 million UK taxpayers will breach the £100,000 earnings barrier by the 2028-29 tax year. This represents a dramatic increase of nearly 500,000 people from the current figure of 1.8 million affected taxpayers.
The so-called "£100,000 tax trap" sees workers crossing this income boundary facing marginal tax rates reaching 60%, or 62% when National Insurance contributions are included, on earnings between £100,000 and £125,140.
How the Personal Allowance Disappears
This situation occurs because the personal allowance, which currently stands at £12,570, gradually disappears for those earning above £100,000 annually. The threshold for withdrawing this allowance hasn't changed since its introduction in 2010, meaning inflation has dragged thousands more professionals into this bracket.
Stephanie Ebner, financial planning lead at Rathbones, explained the system's fundamental flaw. "The £100,000 tax trap is one of the most baffling quirks in our tax system," she said. "Originally designed to target the very highest earners, after 15 years of inflation and frozen thresholds, it now ensnares thousands of professionals who were never meant to be caught."
Devastating Impact on Families
The consequences are particularly severe for families with young children. Ms Ebner highlighted that for parents with two children under five, earning just £1 over £100,000 can mean losing childcare support worth almost £20,000.
"Hard-working families would need a substantial pay rise just to offset the impact of this tax trap," she added.
HMRC estimates show the scale of this creeping taxation, with the number of people losing some or all their personal allowance set to rise by 88% between 2021–22 and 2028–29.
While alternative routes exist, such as making personal pension contributions, Ms Ebner noted these can require completing tax returns and "potentially negotiating with HMRC to keep childcare benefits," creating additional administrative burdens for affected households.
