Labour urged to give HENRYs a hand to boost investment
The sheer tax cliff-edge facing workers earning £100,000 or more is harming the UK’s ambitions to foster greater retail investment, according to IG.
New research from the online investment platform found that HENRYs, an acronym which stands for High Earner, Not Rich Yet, are unable to invest as much as they would like due to the high marginal tax rates facing workers earning six figures.
Nearly half (48 per cent) of workers earning between £90,000 and £125,000 said they cannot invest to build their wealth due to tax and financial pressures. Among those with nursery age children, this figure rose to 92 per cent.
Under current rules, once one member of a household earns above £100,000, the personal allowance is gradually withdrawn, creating effective marginal tax rates of up to 60 per cent.
Eligibility for additional free childcare hours is also withdrawn when a worker earns above £100,000, piling extra costs onto these households.
The painful £100K tax trap
The research found that 82 per cent of HENRY households changed their behaviour to avoid crossing the £100,000 threshold. A third had reduced their hours, 28 per cent had turned down a promotion, and a quarter had refused a bonus or pay rise, the research found.
Over half (54 per cent) said they would immediately invest more if they did not lose childcare support.
“When earning more leaves you with less capacity to invest, that’s not just a household issue – it’s a structural problem,” said Michael Healy, UK and Ireland managing director at IG Group.
“The UK’s brutal tax cliff edge system is weighing down the very households who are most able to fuel growth in UK capital markets.”
The firm argued that the thresholds at which these penalties apply should be uprated in line with inflation.
The free childcare threshold has been frozen since 2013, meaning it would stand at £135,000 if it had been uprated in line with inflation.
And if the thresholds at which the personal allowance started to be removed had been uprated, then the thresholds would stand at approximately £156,000 and £195,000 today
“Reforming the cliff edge would remove the disincentive, unlock long-term investing among a key demographic, and support both household resilience and broader UK economic growth,” Healey said.