High earners actively avoiding crossing the £100k income threshold

According to the Chartered Management Institute, 43% of managers say they or their employees have taken steps to keep income below £100k. This behaviour is driven by the steep tax consequences that kick in once earnings exceed that level.

This is known as the ‘£100,000 tax trap’. Once income exceeds this, families lose access to tax-free childcare worth up to £2,000 per child and 30 hours of free childcare, worth up to £7,500 per child per year. In addition, the personal allowance tapers away between £100,000 and £125,140, creating an effective marginal tax rate of 62% (and 69.5% in Scotland).

To mitigate this, it was found that workers are responding as follows:

27% increased pension contributions to reduce taxable income.

24% used salary-sacrifice schemes (though these will be capped from 2029).

15% reduced hours or went part-time.

9% turned down promotions.

8% retired early.

6% donated to charity to stay below the threshold.

It is argued that this causes wider economic concerns, such as discouraging extra work, especially among doctors. Experts argue the threshold is ‘irrational’ and harmful to productivity.