How much tax do you pay above £100k? Britain’s highest earners in numbers
A growing number of Brits have seen their salaries hit £100k – but a growing number are also feeling underwhelmed after having crossed the threshold. What accounts for their disappointment?
There were as many as 1.35m taxpayers earning over £100,000 in the UK during the 2022/23 tax year, an increase of around 16 per cent compared to the previous year, according to a freedom of information request obtained from tax collector HMRC by RSM.
But the numbers of top taxpayers tend to be concentrated in the south of England. More than a quarter (28 per cent) are based in London, while another fifth (22 per cent) are based in the South East, the data showed.
That being said, the capital saw the smallest increase in high-salaried employees compared to the previous year, with the numbers in London rising 13 per cent to 379,000. Northern Ireland saw the fastest growth, with a 21.4 per cent increase to 17,000 taxpayers, followed by the North East, which saw a 21.1 per cent increase to 23,000 and Scotland, which saw a 19.4 per cent rise to 80,000.
The 60 per cent tax trap
More and more of top earners have complained that hitting a salary of 100k or more does not make them feel as rich as they thought it might.
One explanation for this sentiment is the high rates of inflation the UK and other major economies have seen over the past four years. That means a £100,000 salary today would only be equivalent to about £81,000 in 2021.
Another explanation comes down to a pernicious quirk in the UK tax system, under which those earning between 100,000 and 125,000 suffer a steep rise in income tax.
Under rules introduced in 2010, taxpayers lose £1 of their personal allowance for every £2 earned above £100,000. That means that once someone’s salary hits £125,124, they forfeit their personal allowance completely and do not have any tax-free income. That results in an effective marginal rate of up to 60 per cent on the top slice of the income of those earning £100,000-£125,124.
Since 2021, the personal allowance of £12,570 has been frozen, despite a significant jump in average earnings over the past four years amid rising inflation. That means top earners have seen a real-terms fall in the value of their take-home income. In other words, someone who earned £125,000 five years ago would be a lot better off than someone earning the same today.
Alongside this trend has also been a jump in the number of earners whose pay falls within the so-called ‘60 per cent tax trap’.
In 2023-24, some 634,000 taxpayers – nearly half those earning over £100,000 – were thought to fall into the 60 per cent bracket, a rise of around 200,000 compared to two years earlier, according to FoI data obtained by Bowmore Financial Planning.
Tuition fee troubles
The strain felt by six figure earners is being compounded by the fact that a growing number will be saddled with tens of thousands of pounds of student debt, which they’ll have to pay off faster.
From September 2012, tuition fees were trebled to £9,000 per year and have since risen to £9,535. Current students are also entitled to an annual maintenance loan of up to £13,762. That means a graduate on a three year course could begin their careers with more than £70,000 of student debt – or higher if they’ve taken out a postgraduate loan.
Graduates pay down their student debt at a rate of 9 per cent for degrees and 6 per cent for postgraduate degree loans. The repayment threshold at which graduates begin to pay down their loan has been frozen at £27,295 since April 2021 – a real-terms rise. That means a graduate earning £100,000 could be paying as much as £10,900 per year on tuition fee repayments – though of course, that means they will pay their debt down at a faster rate than the average graduate, so will see their take-home pay rise after a few years.
When taken together, all this means a 31-year old graduate earning £125,000 can expect a take-home pay of as little as £63,134 or just half their salary. To achieve the same take-home pay of someone earning £125,000 four years ago, they’d have to increase their salary to around £210,000 today.
So if someone says they don’t feel as wealthy as they’d hoped to once their pay hit six figures – they probably have a point.