The potential impact of the Autumn Budget on the higher earners, who are a major target for taxes

Many Britons are struggling due to frozen income tax thresholds and the high cost of housing, and additional tax increases targeted at the wealthy could worsen their financial situation

According to recent analysis, a group of higher earners who make about £100,000 annually may be the main target of tax increases in the autumn budget.

They are referred to as Henrys, or High Earners Not Rich Yet, because they do not receive assistance for childcare costs, and the high cost of housing makes them feel impoverished even with their high-end incomes.

Wealth firm Hargreaves Lansdown has suggested that chancellor Rachel Reeves may now target them with tax increases in the upcoming budget.

Sarah Coles, head of personal finance at Hargreaves Lansdown, stated: "Tax increases may disproportionately affect so-called Henrys. In addition to the heavy income tax burdens they already bear, individuals making over £100,000 are also cut off from government childcare assistance.

But as conjecture surrounding possible tax adjustments in the budget intensifies, those who have already had a significant impact on Henrys may be hit even more severely.

Which budgetary tax increases might affect higher earners?

In addition to having to pay more income tax due to frozen thresholds that force more people to pay tax at higher rates, higher earners will be squeezed by impending council tax increases.

These earners might be subject to any potential wealth taxes that affect their investments, pensions, and any potential inheritance even though they haven't been able to accumulate sizable savings and investments for the future.

We examine potential tax increases for Henrys in the upcoming budget.

Income tax.

Those with higher incomes are especially affected by income tax. They pay nearly half of all income taxes (49 percent) and are among the top 5 percent of earners with incomes over 97,900.

They pay a disproportionate amount of taxes on the part of their income that is between £100,000 and £125,140.

This is because you forfeit one of your personal allowances (the amount you can make before paying taxes, currently 12,570) for every two times you earn over £100,000.

Your personal allowance is gone by the time you make £125,140, so you essentially pay 60% tax on that portion of your income. When you exceed 125,140, you are required to pay 45 percent of the excess.

More people are paying higher rates of tax due to frozen tax thresholds. In Rishi Sunak's 2021 Spring Budget, tax thresholds were first frozen until 2025 - 2026. Later, former chancellor Jeremy Hunt extended the freeze until April 2028. Chancellor Rachel Reeves stated in last year's Autumn Budget that the income tax threshold freeze would be maintained until 2028.

However, more people would become eligible to pay an effective tax rate of 60 percent and more would enter the 45 percent tax bracket if the government were persuaded to extend the tax freeze in the upcoming budget.

Strategies to reduce income tax payments.

Verify whether your employer offers a salary sacrifice plan, in which you contribute a portion of your income to tax-free expenses such as pensions. Paying into a SIPP and receiving tax relief at the highest marginal rate is still possible if you don't. Utilize a cash ISA to minimize your tax liability if you are earning interest from savings. council tax.

Council tax bills are also higher for those with higher incomes. They go into higher council tax brackets because they usually own or rent larger, more costly properties in affluent areas of town.

Increases in council taxes are anticipated to cover spending review commitments; Reeves has stated that these increases will not exceed 5 percent annually, but they represent a significantly larger increase for those who own more expensive real estate.

For instance, it may increase by 114 for someone paying 2,280 for a Band D property this year and by 228 for someone paying 2,280 for a Band H property.

Additionally, the government might view council tax as a possible source of funding for the budget, which would increase taxes on the most expensive homes by adding more bands.

Unfortunately, unless you move to a smaller property in a less expensive area, there isn't much you can do to prevent council tax increases.

Tax on capital.

Despite Henrys's inability to accumulate substantial investments, even ordinary investors now face the possibility of taxes due to changes in allowances.

Due to recent significant reductions in capital gains tax (CGT) and dividend tax allowances, there is a chance that any additional changes will subject even individuals with modest investments (apart from an ISA or pension) to these taxes.

Only 3,000 is currently the CGT-exempt amount. Today, it is only 500 for dividend tax.

Since the government is eager to promote investment in the UK, it would be counterintuitive for it to make dividend investing less lucrative given how alluring the UK market is to investors looking for dividends. There is a chance that raising capital gains taxes will erode public interest in the stock market. However, that does not preclude it from occurring in the budget.

If this is an issue, it makes sense to benefit from pension allowances and stock and share ISAs. Because the money in both is tax-sheltered, you can make better long-term investments," Coles said.

In a different piece, we examine strategies for reducing your capital gains tax liability.

Pension tax. .

Henrys are probably not saving enough for their pensions despite their higher incomes because of their higher-than-average other expenses.

Less than half (47%) of people with incomes between £100,000 and £130,000 are on track for a comfortable retirement, according to the Hargreaves Lansdown Savings and Resilience Barometer.

Coles stated that rumored pension reforms might make matters worse. For instance, possible modifications to salary sacrifice plans that could reduce their tax appeal or result in their elimination.

Employers set up salary sacrifice plans, which involve you forgoing a portion of your pay in return for funds that are deposited straight into your pension. By doing this, the employer saves national insurance and you save income tax and national insurance on that portion of your pay.

These tactics could be used by Henry's to reduce their taxable income and stay clear of the £100,000 earnings cliff edge. To avoid paying taxes on this part of their pay, some people will use bonus sacrifice to pay their entire bonus into the plan, according to Coles.

Salary sacrifice plans may become less appealing or even be abandoned by employers as a result of the government's current review of them and examination of methods to recoup additional taxes.

Inheritance tax. .

Reeves has already implemented a number of extremely unpopular inheritance tax reforms, such as eliminating the exemption for pensions starting in April 2027. This implies that upon your death, inheritance tax may need to be paid on your pension.

Due to the complexity of the system, the government may always consider making additional changes to the budget in order to raise more funds.

This may entail, for instance, extending the time frame (currently seven years) for larger gifts to leave the estate or altering the tax exemptions for spouses.

"For Henrys, who are hoping that an inheritance could fill the gaps in their finances, there may be concerning news regarding the future of inheritance tax," Coles said.

It could persuade those who intend to leave them money to do so as soon as possible, to take advantage of gifting allowances, or to start the seven-year period that passes before a larger gift leaves their estate.