More than half of higher earners would consider rejecting, deferring or restructuring a pay rise to avoid paying more tax, according to findings from RBC Wealth Management. The wealth manager surveyed 750 Henrys, a term describing people earning £100,000 or more who lack substantial savings or investments. The group faces particular financial strain from high housing costs, childcare expenses, student loans and aspirational spending despite their headline earnings.
The reluctance to accept pay rises stems from Britain's frozen income tax thresholds, which have remained unchanged since April 2021. Those earning £50,270 start paying the higher rate of 40 per cent on income above that level, while earnings exceeding £125,140 face 45 per cent tax. However, earners between £100,000 and £125,140 face an effective 60 per cent tax rate on a portion of their income due to the withdrawal of their personal allowance. HM Revenue and Customs estimated that nearly 1.5 million people paid this 60 per cent rate in the last tax year through losing some or all of their personal allowance.
The survey revealed 46 per cent of Henrys were putting more money into their pension to reduce their taxable income. Daniel Hough, a director at RBC, highlighted that the £100,000 threshold creates a 'cliff edge' affecting not just tax rates but also childcare support, which can be worth tens of thousands of pounds annually for families with young children. Seventy-one per cent of those surveyed expressed concern about the Budget, particularly regarding tax increases and frozen thresholds continuing. Some 79 per cent agreed they were earning more than ever but felt less well off.
Financial vulnerability emerged as a key finding, with 48 per cent saying they could not cover an unexpected bill of £2,000 to £5,000 from savings and would instead need loans, family help, to sell investments or request salary advances. This reflects the paradox of high earners facing limited liquid assets despite substantial incomes. Richard Evans, an investment and pension specialist at Fidelity, explained that pension contributions offer a legal way to reduce taxable income and potentially escape the 60 per cent band, with HMRC providing automatic tax relief topping up contributions.
For higher earners in the UK, frozen tax thresholds mean accepting a pay rise now risks pushing them into punitive effective tax rates and losing childcare benefits, making salary progression financially unattractive despite nominal income growth.