UK households face a 60% 'tax trap' as HMRC could claw back your hard-earned cash. More than one million people are exposing themselves to 'hidden tax traps' by taking on multiple jobs at the same time.
Around 1.3 million workers across the United Kingdom currently hold a second job, according to fresh figures from the Office for National Statistics (ONS). But those pursuing multiple income streams may be walking into financial pitfalls they have not anticipated.
Expert warns of financial implications
Tim Grimsditch, the managing director at Unbiased, warned: 'Building multiple income streams is a smart move for anyone looking to strengthen their financial position. But stacking income sources does come with a few tax and financial implications worth knowing about in advance.'
Once combined earnings cross £50,270, the higher rate kicks in - meaning 40% tax on everything above that line instead of the usual 20%. Things get harsher still above £100,000, where HMRC begins withdrawing the £12,570 Personal Allowance at a rate of £1 for every £2 earned over the threshold, quietly eroding what would otherwise be tax-free income.
Effective 60% marginal tax rate
Mr Grimsditch said: 'By the time you reach £125,140, it's gone entirely. And because this loss compounds on top of the 40 per cent rate already in play, it creates an effective 60 per cent marginal tax rate on income between those two figures.'
He added: 'Child Benefit is clawed back at one per cent for every £200 of individual income above that threshold, and is fully withdrawn once income reaches £80,000.'
Mortgage hurdles for second job holders
Prospective buyers may also run into a frustrating barrier: most mainstream mortgage lenders won't count self-employed or secondary income unless applicants can show two to three years of certified accounts tied specifically to that earnings stream — a hurdle that catches many off guard.
The tax expert shared: 'So the timeline to a mortgage may be longer than expected.'
If you're unsure how to make the most of your additional income, a financial professional can help you build a plan that works harder for your financial future.
