A group of higher earners making around £100,000 a year could become the prime target for tax rises in the Autumn Budget, according to new analysis.
Known as Henrys, which stands for High Earners Not Rich Yet, this demographic lacks help with childcare expenses, and the cost of housing means they already feel squeezed despite their upper-end salaries.
They could now be in the sights of chancellor Rachel Reeves when it comes to tax rises in the next Budget, analysis by wealth firm Hargreaves Lansdown has suggested.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “So-called Henrys could bear the brunt of tax rises. They already face significant income tax burdens, and those earning more than £100,000 fall off the cliff edge of government support for childcare too.
Latest Videos FromMoneyWeek
“However, as speculation grows around potential tax changes in the Budget, those that already hit Henrys hard could strike even harder.”
Which tax rises could hit higher earners in the Budget?
Higher earners are set to be squeezed by looming council tax rises, and face paying more income tax thanks to frozen thresholds that drag more people into paying tax at higher rates.
Despite not having yet been able to amass significant savings and investments for the future, these earners could be in the frame for any potential wealth taxes too – hitting their investments, pensions and any potential inheritance.
We look at the tax rises that could hit Henrys in the next Budget.
Income tax
Income tax is a particular pain point for higher earners. Those who earn more than £97,900 are in the top 5% of earners – and pay almost half of all income tax (49%).
The portion of their income that falls between £100,000 and £125,140 is taxed particularly heavily.
This is because for every £2 you earn over £100,000, you lose £1 of your personal allowance (the amount you can earn before paying tax, currently £12,570).
By the time you earn £125,140, you’ve lost all of your personal allowance, so on that chunk of your salary you effectively pay 60% tax. Once you’ve breached £125,140, you pay 45% on the extra.
Frozen tax thresholds are dragging more people into paying more tax at higher levels. Tax thresholds were initially frozen until 2025-26 in Rishi Sunak's 2021 Spring Budget, with former chancellor Jeremy Hunt later extending the freeze to April 2028. In last year's Autumn Budget, chancellor Rachel Reeves confirmed the income tax threshold freeze would remain in place until 2028.
But if the government was tempted in the upcoming Budget to freeze them for longer to raise tax, it would mean even more people pass over the threshold to pay an effective tax rate of 60%, and more pass into the realms of 45% tax too.
Ways to pay less income tax:
- Check if your employer operates a salary sacrifice scheme, where you give up a portion of your salary, and spend it on certain things free of tax – including pensions.
- If not, you can still pay into a SIPP and receive tax relief at the highest marginal rate.
- Making income from savings interest? Use a cash ISA to protect as much as possible from tax.
Council tax
Higher earners also face higher council tax bills. They have typically bought or are renting larger and more expensive properties, in nicer parts of town, so fall into higher council tax brackets.
Council tax rises are expected to pay for commitments in the Spending Review – Reeves has said this won’t be more than 5% a year, but that is a much bigger rise for those in pricier properties.
Someone in a Band D property paying £2,280 this year, for example, might see it rise £114, while someone in a Band H property might see it increase by £228.
There’s also the chance the government sees council tax as a potential fundraising option in the Budget, focused on the Henrys – adding more bands to hike the tax on the most expensive homes.
Unfortunately there’s not much that can be done to avoid council tax rises, short of moving to a smaller property in a cheaper area.
Tax on investments
Henrys might not have been able to build up significant investments, but thanks to changes in allowances, even typical investors face the threat of tax.
Capital gains tax (CGT) and dividend tax allowances have been cut so much in recent years there’s a risk any more changes expose even those with modest investments (outside an ISA or pension) to these taxes.
As it is, the CGT exempt amount is currently only £3,000. For dividend tax, it is now just £500.
Given how attractive the UK market is for investors seeking dividends, it would be counter-intuitive for the government to make dividend investing less rewarding, especially as it is keen to encourage investment in the UK. Taxing capital gains more would also risk denting people’s enthusiasm for the stock market. But that’s not to say it won’t happen in the Budget.
“If this is a concern, it makes sense to take advantage of stocks and shares ISAs and pension allowances. Money in both is protected from tax, helping you build more effectively for the future,” said Coles.
We look at ways to cut your capital gains tax bill in a separate article.
Tax on pensions
Despite their higher earnings, their higher-than-average other costs mean Henrys are likely to be falling short when it comes to pension saving.
The Hargreaves Lansdown Savings & Resilience Barometer shows fewer than half (47%) of those on incomes of between £100,000 and £130,000 are on track for a comfortable retirement.
Rumoured changes to pensions could make things worse, said Coles. For example, potential changes to salary sacrifice schemes that would make them less tax-attractive – or see them scrapped altogether.
Set up by employers, pension salary sacrifice schemes work by you giving up a chunk of your salary in exchange for money paid directly into your pension. This saves you income tax and National Insurance on that portion of your pay and the employer saves National Insurance too.
“Henrys may be using these schemes to bring down their taxable salary and avoid the £100,000 earnings cliff edge. Some will use bonus sacrifice to pay their entire bonus into the scheme and avoid tax on this portion of their salary,” said Coles.
The government is currently reviewing salary sacrifice schemes, and looking at ways to claw back more tax from them, which could see them made less attractive or even dumped by employers.
Tax on inheritance
Reeves has already brought in some highly unpopular changes to inheritance tax, including making pensions no longer exempt from April 2027. That means inheritance tax may have to be paid on your pension when you die.
Because the system is so complicated, there are always more tweaks the government might consider in the Budget, in order to raise more money.
This could potentially include changing tax exemptions for spouses, for example, or extending the period of time it takes for larger gifts to leave the estate (currently seven years).
“Questions around the future of inheritance tax could be worrying news for Henrys, hoping that an inheritance could close the gaps in their finances,” said Coles.
“It might encourage anyone planning to leave them money to do so sooner rather than later, to take advantage of gifting allowances or get the clock ticking on the seven years it takes for a larger gift to leave their estate.”
