Frozen tax thresholds: The impact on HENRY's?

HENRYs squeezed again: Frozen tax bands turn pay rises into stealth tax hikes. Freezing tax thresholds for another three years is a stealth tax that hits HENRYs High Earners, Not Rich Yet particularly hard. Many professionals earning around £100,000 will now be dragged further into the 45% bracket and lose their personal allowance altogether, effectively facing a marginal tax rate of 62% on income between £100,000 and £125,140. With inflation and modest pay rises pushing more people into higher tax bands, the so-called high earners are seeing their disposable income eroded by fiscal drag. These are people juggling large mortgages, childcare costs and London living expenses — far from feeling rich. The longer the freeze continues, the more middle-to-upper-income professionals will feel the squeeze.

It’s a sorry state of affairs when fiscal drag becomes the Government’s go-to strategy, and freezing thresholds for another three years will quietly squeeze high earners on £100k until they feel less prosperous than a happy Hooray Henry, albeit without the red trousers. The knock-on effects are predictable: reduced disposable income, dampened spending, and a growing sense that aspiration is being punished rather than rewarded, all of which risks slowing the wider economy just when confidence is already fragile.

Freezing thresholds sounds dull but it hits high earners fast. Someone on £100k is already in the most punishing cliff edge in the system where every extra pound between £100k and £125,140 loses them their personal allowance. Extending the freeze pulls more people into that trap and raises their tax bill each year without the government ever changing the rates. The real knock on effect is behavioural. When people realise an extra day of work barely moves their take home pay, they start stepping back. I’m already seeing parents drop to four day weeks because the marginal gain isn’t worth the nursery bill. It’s a loss for productivity and a sign that our tax system is pushing ambition in the wrong direction.

Speaking to employees of mine earning over £100,000 after the budget yesterday it’s clear they are now caught in an extremely tight vice.

Britain’s so-called top earners, once seen as comfortably ahead, have quietly become “the squeezed professionals”, as frozen thresholds mean even modest pay rises push them deeper into the £100K tax trap, with effective marginal rates of around 60% as their personal allowance disappears.

The pressure is even worse for younger professionals. Many still carry significant student loan balances, don’t qualify for any childcare support or allowances, have far fewer salary sacrifice options left, and in the middle of a cost of living squeeze, do not want to lock large sums away in pensions just to mitigate tax. They are hit with the headline tax, the hidden tax, and long-term repayment burdens.

The knock-on effects are clear: reduced disposable income, suppressed ambition, and high performers questioning whether it’s worth it.

So-called HENRYs are amongst the hardest hit by this Budget.

For someone earning on the cusp of the £100,000 limit and receiving a 3.8% inflationary pay rise, if allowances had risen with inflation, the extra £3,800 of income would have generated just £1,042 in income tax. Instead, because the £100,000 taper threshold is frozen, the tax bill jumps to £2,280.

That’s an extra £1,238 taken essentially due to fiscal drag — a stealth tax on ordinary higher earners. And with allowances now frozen for the next three years, these individuals could find themselves £3,000 to £4,000 a year worse off by 2031.

And if they are paid via dividends, it’s even worse. Dividend tax has risen by two per cent, so a typical business owner drawing around £90,000 of dividends is being hit by both fiscal drag and higher dividend tax at the same time. For many HENRYs running their own companies, this Budget delivers a double squeeze on their take-home pay — wiping out any inflationary increase in income.