High-earning households in the UK are being hit with a so-called "breadwinner penalty" of more than £12,000 a year, according to a new analysis from financial firm IG. The penalty arises when one partner earns over £100,000, triggering tax cliffs and benefit tapers that leave couples worse off than if both earned similar amounts.
How the Penalty Works
Once a household reaches the £100,000 income mark, HMRC’s personal tax-free allowance begins to taper. This means that for every £2 earned above £100,000, the allowance is reduced by £1, effectively increasing the tax burden. Additionally, the High Income Benefit Charge affects families claiming Child Benefit when the highest earner’s income exceeds £80,000. For those earning over £100,000, Child Benefit is completely withdrawn.
The IG analysis highlights a stark example: a household where one partner earns £110,000 and the other earns £10,000 would be £12,450 worse off compared to a couple each earning £60,000. This disparity is due to the loss of the personal allowance and Child Benefit.
Impact on Working Parents
Working parents are also affected by the £100,000 threshold. They are eligible for 30 hours of free childcare per week only if neither parent has an adjusted net income over £100,000. This creates a disincentive for high earners to increase their income, as they may lose valuable benefits.
Michael Healy of IG warned: "Henrys (High Earners Not Rich Yet) should be among the UK’s strongest drivers of investing and wealth creation, but too many feel discouraged from progressing, earning more or investing consistently for the future."
Political Reaction
Former Conservative Chancellor Jeremy Hunt commented on the issue, saying: "The findings highlight how thresholds around £100,000 can create unintended consequences for work, progression and family finances."
A spokesperson for HM Treasury defended the system, stating: "The tax system remains highly progressive with those with the broadest shoulders contributing more to support measures such as freezing fuel duty to the end of the year, freezing rail fares and prescription charges. The personal allowance taper impacts fewer than 4 per cent of parents, and we’re encouraging retail investing through reforming cash Isas and by giving people clearer information and bespoke support from banks."
