If you’re a high earner, but not rich yet (also known as a HENRY) then the Autumn Budget which took place three weeks ago could mean your purchasing power may be significantly reduced by 2029 by thousands.
After all the kite-flying ahead of chancellor Rachel Reeves’s Autumn Budget announcement (not to mention the Office for Budget Responsibility’s (OBR) report being leaked early on the day), the amount of tax hikes announced was not a surprise. But that is small comfort for the high earners that could be left thousands of pounds worse-off by the end of the decade.
Analysis from investment platform IG suggests HENRY households earning around £100,000 could see their annual real purchasing power reduced by as much as £15,000 by 2029 thanks to measures in the Budget.
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“While the chancellor met her fiscal rules and avoided increases to income tax or national insurance, the combination of policy measures and frozen thresholds will have a disproportionately large effect on HENRY households,” said Chris Beauchamp, chief market analyst at IG.
IG’s analysis found that, when factoring in household inflation and fiscal drag resulting from frozen tax thresholds over the next three years, ninth-decile earners (with an average household income of £65,700) face an average reduction in real purchasing power of £8,935 by 2029. For top-decile earners (average income of £103,700), the reduction is £15,658.
How will the Budget impact high earners?
There are a number of measures that will dent your finances. From frozen tax thresholds, council tax hikes to IHT changes - these are the ones HENRYs should look out for.
Frozen tax thresholds
Reeves extended the freeze on tax thresholds until 2031. This is widely regarded as a ‘stealth tax’ because, assuming incomes rise roughly in line with inflation, more people will be dragged into higher tax brackets without being significantly wealthier in real terms – a process known as ‘fiscal drag’.
“At that point, it’s not just more income tax you have to worry about, but potentially higher rates on everything from dividend tax to capital gains tax, and a shrinking personal allowance,” says Sarah Coles, head of personal finance at Hargreaves Lansdown.
Investment taxes
Despite the chancellor’s claims to be building an investment culture in the UK, Reeves also announced higher taxes on investments. This includes higher rates of tax on income from dividends, as well as a cut to tax relief on new shares in venture capital trusts from April.
Higher inheritance tax
Inheritance tax (IHT) bands have also been frozen until 2031, meaning the nil rate band for estates and residences will remain at £325,000 and £175,000 respectively until then. The annual gift allowance has also been capped at £3,000. This essentially means more families will fall into the IHT trap.
“IHT used to be seen as a wealthy person’s tax, but a mix of booming house prices and threshold freezes mean this may not be the case for much longer,” says Coles.
Council tax hikes
Council taxes are also going up in April; the government has previously said that councils will be allowed to hike council tax by 5% without requiring a referendum.
Some parts of the UK face a council tax hike of as much as £500 by 2029/30.
There will also be a new ‘mansion tax’, collected via council tax, on homes worth £2m or more, from April 2028.
Higher “sin taxes”
The government has increased taxes on a range of undesirable behaviours. The one that will likely impact the most households is the withdrawal of 5p fuel duty relief, which will be gradually unwound between August 2026 and March 2027.
Alcohol duty will rise by RPI inflation from 1 February. Tobacco duty will increase annually by RPI + two percentage points (with immediate effect). There will also be a one-off increase of £2.20 per 100 cigarettes or 50g of tobacco, coinciding with a similar levy on vaping products, of £2.20 per 10ml of vaping liquid, in order to ensure that there is still an incentive for smokers to switch to vaping.
How to reduce your Budget tax exposure
While the Budget measures will cause a hit on your income, there are things you can do to cushion the blow and maintain your household spending power.
First, make the most of your ISA allowance – which still stands at £20,000 for cash ISAs until the new limit applies from April 2027. This will protect you from increases to capital gains tax, as well as taxes on your income from interest on cash.
If your money is not in an ISA and you are a basic tax rate payer, you will pay tax on any interest above £1,000 that you earn, and anything over £500 if you are a higher rate tax payer. Keeping your money in an ISA shields your returns from the tax man, so make the most of the cash ISA allowance while you can.
Dividends from investments held in a stocks and shares ISA are also exempt from dividend tax, so you will avoid the higher tax rates applying to this form of income.
If you’re married or in a civil partnership, you can take advantage of increased personal allowances for tax purposes. “If one spouse is a non-taxpayer and the other is a basic rate taxpayer, the marriage allowance lets the non-taxpayer give £1,260 of their personal allowance to their spouse in the current tax year,” explains Coles
Spouses maxing out their ISA allowance may also be able to pass some of their holdings to their partner in order to reduce their tax bill. Assets that produce an income “can be passed between spouses (or civil partners) without triggering a tax bill”, says Coles. “They can therefore be shared between a couple, so that both can take advantage of their ISA allowances, and they can both take an income up to the threshold.”
Pension contributions – up to £60,000 annually – also qualify for tax relief at your highest marginal rate, while contributions to self-invested personal pensions (Sipps) also offer tax relief on the first £3,600 per year.
“If you can afford to put more money away for the long term, it’s a great way to cut your tax bill – as well as securing the income you need in retirement,” says Coles.
Salary sacrifice is another approach that can reduce your tax bill, and the time to use it is now: from 2029, only the first £2,000 will be free of employer and employee National Insurance. “However, there’s still time to take advantage before this change,” says Coles.
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