UK £100k Tax Trap Statistics: 727,000 Caught As Numbers Rise 85% In Four Years

13 October 2026 | UK Tax News

The number of people caught in Britain’s controversial £100,000 tax trap has increased by 85% in just four years, with new HM Revenue & Customs (HMRC) figures revealing that 727,000 taxpayers fell into the income band associated with an effective 60% marginal income tax rate.

The figures, obtained by the Financial Times through a Freedom of Information request and reported on 9 October 2026, show that 727,000 individuals had adjusted net incomes between £100,000 and £125,140 during the 2025–26 financial year.

That represents a substantial increase from 2021–22, highlighting how frozen income tax thresholds and rising nominal salaries are exposing more professionals to one of Britain’s most criticised tax rules.

The findings come ahead of the Autumn Budget on 28 October, when Chancellor John Healey faces growing pressure over the country’s tax burden and the financial incentives for higher earners to increase their working hours.

For London professionals, particularly those employed in financial services, technology, law and senior management, the impact can extend beyond income tax to the loss of valuable childcare support.

Under the current system, workers in England, Wales and Northern Ireland who earn between £100,000 and £125,140 can face an effective marginal income tax rate of 60%, even though the official higher rate remains 40%.

The additional charge arises because taxpayers lose £1 of their tax-free personal allowance for every £2 of adjusted net income earned above £100,000.

With the standard personal allowance frozen at £12,570 for the 2026–27 tax year, the allowance disappears completely once adjusted net income reaches £125,140.

Consequently, someone receiving a £10,000 salary increase from £100,000 to £110,000 would typically lose £6,000 in additional income tax, leaving £4,000 before National Insurance contributions.

For most employees in this band, the additional 2% National Insurance charge pushes the combined marginal deduction to 62%, meaning the same £10,000 increase would leave approximately £3,800.

The calculation illustrates why the tax trap has become an increasingly contentious issue among professionals whose salaries have risen without matching increases in tax thresholds.

Olly Cheng, financial planning divisional lead at Rathbones, described the £100,000 threshold as “one of the most penal tax cliffs in the system” in comments reported by the Financial Times.

Cheng also highlighted the changing financial reality facing six-figure earners, observing that a £100,000 salary no longer necessarily provides the financial flexibility traditionally associated with that level of income.

The latest figures are part of a wider pattern known as fiscal drag, where increasing wages push workers into higher effective tax rates while tax thresholds remain unchanged.

The UK’s personal allowance has remained at £12,570 since the 2021–22 tax year and, under existing policy, is scheduled to stay at that level until April 2031.

The effects extend well beyond the £100,000 threshold.

According to HMRC’s July 2026 income tax statistics, the number of higher-rate income taxpayers is projected to reach 7.7 million in 2026–27.

Another 1.29 million people are projected to pay additional-rate income tax, representing an increase of 44% compared with 2023–24.

Combined, approximately 8.99 million taxpayers are expected to fall into the higher-rate or additional-rate categories during the current tax year.

These broader figures are distinct from the 727,000 individuals identified within the £100,000–£125,140 band in 2025–26, but they underline the growing number of taxpayers exposed to higher rates.

Stephanie Ebner, a financial planning lead at Rathbones, previously described the situation as “one of the most baffling quirks in our tax system”, warning that inflation and frozen thresholds were drawing more professionals into the system.

London Parents Face an Even Steeper Financial Penalty

The latest statistics have renewed attention on the additional financial consequences for working parents earning around £100,000.

In England, access to the government’s expanded working-parent childcare scheme depends on neither parent having expected adjusted net income above £100,000.

Eligible families can receive 30 hours of funded childcare each week for 38 weeks of the year for children aged between nine months and four years.

However, where either parent exceeds the income limit, the family can lose eligibility for the working-parent entitlement, although the universal 15 funded hours for three- and four-year-olds remain available.

The same £100,000 individual income limit also applies to Tax-Free Childcare, which can provide up to £2,000 per child annually, or £4,000 for an eligible disabled child.

This creates an unusually sharp financial cliff edge, where earning marginally more than £100,000 can leave some families substantially worse off once lost childcare assistance is considered.

The Institute for Fiscal Studies has highlighted the scale of the problem.

In an illustrative scenario involving two young children requiring nursery care, a parent in London would need earnings of approximately £149,000 to recover the disposable income lost after crossing the £100,000 childcare threshold.

The precise impact depends on childcare fees, children’s ages, working arrangements and household circumstances, but the example demonstrates why some higher-earning parents reconsider promotions or reduce their working hours.

The distinction between individual and household earnings also creates disparities.

A household where two working parents each earn £99,000 can potentially qualify for working-parent childcare support, while another household with one parent earning £101,000 may lose eligibility, even if its combined income is considerably lower.

Charlene Young, senior pensions and savings expert at AJ Bell, previously warned that parents could face substantial financial penalties.

“Parents might be able to re-arrange their finances to side-step the penalty by making modest pension contributions,” Young said in an August 2025 analysis.

Qualifying pension contributions can reduce adjusted net income, potentially restoring childcare eligibility while increasing retirement savings. However, individual pension allowances, contribution limits and tax circumstances must be considered.

The issue has also become part of the political debate ahead of the October Budget.

Conservative leader Kemi Badenoch has proposed removing the £100,000 childcare income cliff edge, arguing that parents should not lose funded childcare simply because their earnings increase.

However, removing the threshold would create additional costs for the Treasury, and no such reform has been implemented.

The Government faces competing pressures. Reforming the system could improve incentives for skilled professionals to work additional hours, but reducing the effective tax burden would also have consequences for public finances.

The Institute for Fiscal Studies and other economic commentators have repeatedly raised concerns that sharply increasing marginal tax rates can discourage additional employment and create distortions in decisions about work and earnings.

For employees approaching £100,000, the amount that matters is adjusted net income rather than salary alone.

Bonuses, rental profits, savings interest and certain investment income can affect the calculation, while eligible pension contributions and charitable donations made through Gift Aid may reduce it.

The latest statistics suggest the issue is becoming more widespread rather than disappearing.

With 727,000 taxpayers identified within the personal allowance withdrawal band in 2025–26, compared with around 393,000 four years earlier, the growing number of workers affected is likely to keep the £100,000 threshold under scrutiny.

Until the Government changes the existing rules, millions of higher earners will continue to navigate frozen tax thresholds, while those approaching six-figure adjusted net incomes face particularly important decisions about bonuses, pension contributions and childcare eligibility.

Whether the 28 October Budget addresses the £100,000 tax trap remains uncertain, but the latest HMRC figures provide fresh evidence of how quickly its reach has expanded.