A few weeks ago, I was reading an article in The Times that explored a lesser-known quirk of the UK tax system—one that’s quietly influencing the decisions of high-earning professionals across the country.
It looked at the growing number of individuals choosing to structure their income to avoid crossing the £100,000 mark. At first glance, that might sound counter intuitive.
Surely earning more is always better? But what the article revealed—and what many of us are starting to understand more clearly—is that past a certain point, the financial reward for working harder or taking on greater responsibility can begin to diminish significantly. It’s a fascinating and somewhat troubling shift, and one that resurfaced in my mind over the weekend during a discussion with a group of friends.
The conversation wasn’t necessarily about salaries or tax, but as we spoke about career growth, financial planning, and what people’s next steps were, it came up again: that moment when earning more doesn’t always feel like moving forward.
There is a specific point in the UK income tax system—at £100,000—where the rules change dramatically. Not only do you start paying 40% tax on anything earned above that threshold (as part of the higher rate band), but you also begin to lose your tax-free personal allowance entirely. For every £2 you earn over £100,000, £1 of your personal allowance is withdrawn.
By the time your income reaches £125,140, it has been completely removed. This creates an effective marginal tax rate of 60% on the income earned between £100,000 and £125,140. In other words, for every extra pound earned in that band, you’re only taking home 40 pence. I’ve realised that for many people, this is a startling realisation.
What’s perhaps even more surprising is the psychological impact this has. As business leaders and professionals, we’re often driven by a desire to push forward, to do better, to take the next step—whether that’s in the form of a promotion, a larger project, or an increase in pay. But when the financial incentive becomes disproportionate to the effort, responsibility, and stress required, it creates a moment of pause. Should I say yes to that extra work? Is the reward really worth it?
And perhaps most crucially, could I be financially worse off for doing more?
This is especially relevant to a group now commonly referred to as HENRYs—High Earners, Not Rich Yet. Now I didn’t know who this group was when it was brought up over the weekend but it turns out these are individuals typically earning between £70,000 and £120,000, often working in demanding professional roles, raising families, paying mortgages, and contributing
significantly to the economy. On paper, they’re doing well. But the reality can feel very different. Rising childcare costs, higher interest rates, and escalating living expenses are squeezing everyone including this group, which is supposedly leading many to feel stuck between ambition and affordability. The £100,000 tax cliff only adds to that pressure, creating a sort of ceiling that feels artificial, and at times, punitive.
This isn’t just a financial issue; it’s also a cultural and operational one for businesses. If we know that employees may feel demotivated or discouraged from progressing because of how the tax
system affects their take-home pay, what does that mean for retention and progression? Are we unintentionally limiting talent growth by failing to recognise the true impact of taxation beyond the headline rates? And what can employers do to better support their teams in navigating these thresholds?
It starts with awareness. Too often, salary discussions focus solely on gross income, without consideration for how tax structure, benefits, student loans and allowances affect real-world outcomes. Employers need to understand that, for many professionals, crossing that £100k line isn’t a simple milestone—it’s a tipping point. For those managing compensation, offering more thoughtful payment packages that incorporate elements like pension contributions, flexible benefits, or tax-efficient perks can make a significant difference. It’s not just about paying people more, but about helping them make the most of what they earn.
As someone who has spent much of my career advocating for transparency and sustainability in business, I find this situation troubling. Our tax system should be designed to encourage success, not to discourage people from progressing. When individuals start to avoid promotions or extra responsibility because of what it will cost them financially, we’re heading in the wrong direction. I’ve always believed that contribution to society—whether through taxes, employment, or innovation—should be celebrated and supported. But that contribution must also feel fair and proportionate.
The truth is, the people most affected by this threshold are not the ultra-wealthy. They are the business owners, department heads, consultants, and professionals who work long hours, take on significant risk, and support others around them. Penalising them through overly complex and harsh tax rules sends the wrong message. It says: stay where you are. Don’t stretch. Don’t strive. And that’s something we can’t afford—economically or socially.
There’s no easy fix. Tax reform is complex. Talking openly about the realities professionals are facing is the first step. We should feel able to question systems that no longer serve us and to push for smarter, more compassionate frameworks that encourage ambition, reward responsibility, and support the middle layer of our workforce—not just those at the very top or bottom.
It’s not about avoiding tax or gaming the system. It’s about designing a fairer one—where effort and reward stay in healthy proportion, and where success doesn’t have to come at a loss.The £100k tax trap is just one example of where policy and lived experience are out of step. But it’s an important one. And for many professionals—whether they realise it yet or not—it’s already shaping decisions, shifting career trajectories, and redefining what success looks like.
As leaders, we owe it to our teams, and to ourselves, to understand that impact—and to think creatively about how we support ambition, not stifle it.
Rachel Watkyn
Eco Entrepreneur Rachel Watkyn is the founder of Tiny Box Company which has a £10,000,000 annual turnover. www.tinyboxcompany.com and Know The Origin www.knowtheorigin.com which allows consumers to make sustainable choices on household goods, activewear and gifts based on their personal values.
Rachel is a well-known expert on sustainability and to date is the most successful female to appear on Dragon’s Den
Rachel runs a large team in Sussex and is a frequent speaker at business events.
Rachel runs free business clinics once a week for those looking to get back into the work force or who have a new business idea.
