HMRC is hitting UK households with what people call the £100000 tax trap. This tax trap has stopped people from advancing in their careers as thousands face a massive 71 percent charge. Workers who earn more than £100,000 face a large HMRC bill because their tax-free personal allowance gets gradually taken away and they lose childcare support.
Killik & Co has warned that more than one in five high earners think the £100000 tax trap is damaging their career progress. The study surveyed 2,000 people earning six-figure salaries and found that 10 percent had thought about reducing their working hours to keep their income below the threshold. Another 17 percent said they would refuse a salary increase or promotion to avoid going over the £100,000 mark.
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Workers who earn more than £100,000 face a large HMRC bill as their tax-free personal allowance gets gradually removed and they lose access to government-funded childcare. Will Stevens is the head of Proposition Management at Killik & Co. He said the tax trap was actively stopping workers from trying to earn more money. He said this is putting families under financial pressure and creating unnecessary difficulties.
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It forces families to use unhelpful strategies like refusing promotions and looking for less beneficial forms of payment. Mr Stevens warned that this hurts the personal finances of those affected but also damages the wider economy as young talented people stop advancing their careers to avoid the trap.
The problem works like this: for every £2 you earn over £100,000 you lose £1 of personal allowance. This means that portion gets taxed at both 40 percent and effectively another 20 percent which creates a 60 percent marginal rate. You start losing your personal allowance once your adjusted net income exceeds £100,000.
Your adjusted net income is your total taxable income before personal allowances and minus certain tax reliefs. The personal allowance disappears completely at £125,140.
