More people classified as HENRYs - high earners who are not rich yet - are discovering that a large salary does not go as far as expected.
Fiscal drag, the sudden loss of childcare support, and heavy taxation are putting growing pressure on high earners.
A growing number of well-paid professionals still lack the wealth needed for a genuinely affluent lifestyle. They are often called HENRYs: "high earners, not rich yet."
HENRYs are usually in their late 20s or 30s and work in London, yet one salary rarely covers a good home in a desirable part of the capital. Some have children, but private school and childcare costs can remain out of reach.
HENRYs also face a sharp tax penalty in the UK: once their income exceeds 100,000, part of it can be taxed at an effective rate of 60%, while benefits such as some free childcare are withdrawn.
How high taxes are affecting HENRYs
The UK's highest earners bring in the most tax revenue. In the 2026/27 tax year, the top 10% - people earning around 70,000 and above - are expected to pay 60% of all income tax collected.
In the UK, the average earner brings home an annual salary of around 39,039 and pays roughly 5,294 in income tax. Someone earning 100,000, by comparison, pays about 27,422 - more than five times as much tax, despite earning only around 2.5 times the average salary.
At an annual income of 120,000, your tax bill would be about 39,440 - nearly 7.5 times the average earner's - even though your income is only a little more than three times higher.
Higher earners pay 40% income tax on earnings from 50,271 to 125,140, while income above 125,140 is taxed at 45%. The system has an unusual wrinkle, though: between 100,000 and 125,140, the marginal rate effectively rises to 60%.
Your tax-free personal allowance begins shrinking once your income passes 100,000. It falls by 1 for every 2 earned above that threshold and disappears completely at 125,140.
As a result, income between 100,000 and 125,140 can face an effective tax rate of 60%. For people also repaying student loans, the rate can reach 69%.
More high earners are falling into the trap: their incomes rise each year, but the 100,000 tax threshold has stayed fixed since April 2021.
HENRYs with young children face an even bigger penalty
Earning more than 100,000 brings other tax costs too.
Parents with children between nine months and four years can receive 30 hours of free childcare each week for 38 weeks annually. Earn even 1 more than 100,000 a year, though, and the government support disappears.
Tax-free childcare, worth 2,000 a year per child, ends once your earnings reach 100,000. The universal offer of 15 free childcare hours each week, for 38 weeks a year, remains available to 3- to 4-year-olds.
Child Benefit begins to taper off when an individual earns more than 60,000, and disappears completely once their income reaches 80,000.
How the household's income is divided can also affect the outcome.
IG modelling shows that two-parent families earning 120,000 a year and caring for two nursery-aged children could be up to 9,800 a year worse off. The change reflects the loss of Child Benefit and funded childcare hours.
For instance, a household with one earner making about 110,000 and another earning 10,575 - the minimum needed to qualify for funded childcare - loses 2,300 a year in Child Benefit as well as 7,500 in childcare support.
A salary of 110,000 would also put the higher earner in the 60% tax trap.
A household with two mid-earners bringing in 60,000 each would fare differently: they would keep their Child Benefit and tax-free childcare, without triggering the 100,000 tax trap.
How HENRYs can become wealthy
High taxes can hurt, but a few practical steps may reduce the bill.
Increase your pension contributions
For HENRYs, putting more money into a pension is the main way to lower taxable income and avoid the 60% tax trap.
Pensions can be a useful way to reduce your tax bill. Contributions receive tax relief and may bring your annual income below the 100,000 threshold, helping you avoid the tax trap and losing access to 30 free hours of childcare.
"If your salary and bonus push you into that tax trap, paying into a pension can be a simple way to get yourself back out," said Malvee Vaja, a financial planner at Rathbones.
For example, earning 110,000 and paying an additional 10,000 into your pension would reduce your taxable income to 100,000.
That keeps your personal allowance intact, so part of your income would not be taxed at 60%. The 10,000 goes into your pension tax-free instead, where it remains until retirement.
According to Vaja, adding to your pension while you are caught in the tax-trap zone can pay off significantly later, particularly if you do not expect to draw on those funds for another 20 or 30 years.
Maximising your pension contributions gives you a solid financial base. If your salary later reaches a point where you can no longer make full use of your pension allowance, the money already invested can continue growing in the background, provided it is invested well.
She adds that building a solid pension early means that, if you later have to cut your contributions, your savings can keep working for you as your career progresses and your salary rises.
Know your tax-free allowances
Use every tax-free allowance available to shield more of your savings and investments from tax. Vaja says many high-earning clients still do not know how to get the most from them.
She said: "They know the basics, such as paying into a pension or using an ISA. What they often miss is asking whether they're putting in as much as they can and making the best use of those options."
For instance, you can place up to 20,000 per year into ISAs, and the interest or investment returns earned on that money are tax-free.
Meanwhile, you can pay up to 100% of your salary - capped at 60,000 a year - into your pension. Any unused annual allowance from the previous three years may also be carried forward.
"Those in the HENRY group may find this especially useful when they're putting as much as possible into their pension while caught in the tax trap," Vaja notes.
Watch out for lifestyle creep
A six-figure salary puts you among the top 6% of earners. You may have room in the budget for pricier groceries, but you still need to watch your spending.
Vaja says many well-paid clients still feel short of money because their spending rises with their income, especially on luxuries.
She said: "Watch out for lifestyle creep. Be careful with luxuries you don't really need - an expensive gym membership or a car, for instance. If you live in London and hardly drive, spending 300 to 600 a month on one probably isn't worth it."
Vaja advises keeping lifestyle inflation in check. The extra money left over can then go into pensions, ISAs or general investment accounts, making use of available tax allowances.
You have time on your hands
Losing benefits such as childcare support while caught in the 60% tax trap can hurt. Even so, Vaja says the situation is not hopeless; there may be relief ahead.
Because most HENRYs are still early in their careers, they have years to raise their incomes, move beyond the tax-trap range, and strengthen their finances before eventually becoming wealthy.
"HENRYs have time on their side," she said. "If you build up a decent pension early and use your carry-forward allowance, that larger balance can keep working for you in the background."
Make sure your money is invested appropriately, spread across different assets, and matched to the amount of risk you can handle.
She points out that investors in their 20s and 30s have more time to recover from market swings, which may allow them to accept slightly greater risk in their pension investments.
Sometimes the real risk is treating a pension as something that must never be touched. Excessive caution can leave people taking too little risk, and that can hurt them just as much.
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