Deep freeze on Personal Allowance cliff edge set to push 2.5 million Brits into £100,000 tax trap by 2031
- The £100,000 threshold - where the tapering of the Personal Allowance creates an effective 60% marginal tax rate - has been frozen since it was introduced in 2010
- With income tax brackets frozen until at least April 2031, it is highly unlikely the Government will intervene to raise the £100,000 threshold before then
- Had it kept pace with inflation, it would be £160,000 today and £174,000 by 2031
- The frozen threshold has already generated an additional £29 billion in tax revenue for the Government since 2010
1 September, London - The number of Brits caught in the £100,000 tax trap is set to swell to 2.5 million by 2031, as continued wage growth pushes more people above a threshold that has remained in a deep freeze since 2010, according to new analysis from investing and trading platform IG.
The findings come as the Government signals the potential for further tax rises at this autumn’s Budget.
Income tax thresholds are currently frozen until at least April 2031. The £100,000 Personal Allowance taper threshold is not formally covered by the freeze, but has remained unchanged since 2010 and has no automatic mechanism for increasing. Moving it would require specific Government intervention - making it highly unlikely to be raised ahead of the main income-tax thresholds.
For those earning between £100,000 and £125,140, the Personal Allowance is withdrawn by £1 for every £2 earned above £100,000, creating an effective marginal tax rate of 60%.
The £100,000 threshold has never increased since it was introduced in 2010. Had it risen in line with inflation, it would be around £160,000 today and £174,000 by 2031.
As a result, 2.06 million people now earn more than £100,000, up around 70% from 1.22 million in 2021/22 and more than three times the 588,000 above the threshold in 2010.
£29bn tax boost from frozen threshold
The frozen £100,000 threshold has also delivered a significant increase in tax revenues.
IG estimates that the freeze has generated the government an additional £29 billion to date, compared with a scenario in which the threshold had risen with inflation.
The additional annual tax revenue is currently estimated at £5.2 billion, rising to £7 billion a year by 2031. By 2031, IG estimates the cumulative additional revenue generated by the freeze could exceed £52 billion.
Michael Healy, CEO of IG Consumer, said: “The £100,000 threshold is becoming increasingly detached from reality. It has been frozen since 2010, a time when Gordon Brown was our Prime Minister and Gary Neville still played for Manchester United.
“Wages and inflation have risen sharply since that distant time, meaning millions more people have been dragged into a tax trap, or otherwise stunting their career development to avoid it.
“A promotion, bonus or pay rise should not feel like a financial cliff edge, and hard-working professionals are being disincentivised from taking that next step in their careers. Our hugely outdated tax system is holding back economic growth, and it should be a priority of the government to end the freeze if they’re serious about boosting investment in the UK .”
-ENDS-
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Methodology
Inflation-adjusted threshold for Personal Allowance taper (£174,000 by 2031) calculations:
We have taken the £100,000 threshold as set in 2010, and added one year of inflation, then calculated the next year of inflation growth based on that figure to show the cumulative effect. For example:
Year |
CPI for Previous September |
Threshold Value (£) |
2010-11 |
- |
100,000 |
2011-12 |
3.1% |
103,100 |
2012-13 |
5.2% |
108,461 |
The government uses the previous year’s September CPI so we have used the same. For 2026 onward, the OBR’s forecast was used which is 2.3% in 2026 and 2.0% each year after that.
Headcount calculations for earners above the £100k threshold:
Data up to 2028/29 has already been published via a Freedom of Information request from Rathbones:
Year |
Individuals with total income above £100,000 (m) |
2021-22 |
1.22 |
2025-26 |
1.95 |
2026-27 |
2.06 |
2028-29 |
2.29 |
The OBR March 2026 Economic and Fiscal Outlook states that they assume nominal weekly wage growth of around 3.5% in 2026, averaging 2.25% a year thereafter. But increasing wages doesn’t mean the number earning above £100,000 goes up by exactly the same amount. Instead we look at what’s happened historically:
- Between 2021-22 and 2026-27, wages grew about 30% in total
- Over the same period, the number above £100,000 rose by about 69% from 1.22 million to 2.06 million
- So every 1% of wage growth produces roughly 2% growth in the number of people earning above £100,000
Therefore, starting from HMRC’s most recent published figure to 2031:
- Start at 2.293 million (HMRC’s estimate for 2028-29)
- Wages grow 2.25% a year for the two years to 2030-31, cumulatively, we call this 4.6% rounded up
- Apply the multiplier (1% wage growth producing 2% increase in those earning above £100k): 4.6% × 2 = 9.2% growth in the headcount
- Therefore 2.293 million × 1.092 = 2.503 million
Additional government tax revenue from frozen Personal Allowance threshold vs inflation-adjusted
IG made two calculations of tax bills for those earning above £100,000 since 2010, firstly under the current system with the frozen threshold, and secondly what they would have paid had the threshold risen with inflation. The difference between these figures produced the government’s additional revenue.
Tax year |
Indexed threshold |
Total taper raised (£bn) |
Element raised by £100k freeze (£bn) |
2010-11 |
£100,000 |
1.5 |
0.0 |
2011-12 |
£103,100 |
1.9 |
0.1 |
2012-13 |
£108,461 |
2.1 |
0.3 |
2013-14 |
£110,847 |
2.5 |
0.4 |
2014-15 |
£113,840 |
2.7 |
0.6 |
2015-16 |
£115,206 |
3.1 |
0.7 |
2016-17 |
£115,091 |
3.4 |
0.8 |
2017-18 |
£116,242 |
3.8 |
0.9 |
2018-19 |
£119,729 |
4.1 |
1.1 |
2019-20 |
£122,603 |
4.6 |
1.4 |
2020-21 |
£124,687 |
4.8 |
1.6 |
2021-22 |
£125,310 |
5.2 |
1.7 |
2022-23 |
£129,195 |
5.9 |
2.1 |
2023-24 |
£142,244 |
6.9 |
3.2 |
2024-25 |
£151,774 |
7.8 |
4.2 |
2025-26 |
£154,354 |
8.5 |
4.7 |
2026-27 |
£160,220 |
8.9 |
5.2 |
2027-28 |
£163,584 |
9.4 |
5.6 |
2028-29 |
£166,856 |
9.9 |
6.1 |
2029-30 |
£170,193 |
10.4 |
6.5 |
2030-31 |
£173,597 |
10.9 |
7.0 |
Key assumptions:
- These are static figures, not taking into account behavioural change - it’s well reported that a significant number of people currently arrange their affairs specifically to keep adjusted net income below £100,000, so raising the threshold with inflation would likely prevent this behaviour
- For each tax year, bills under the two scenarios were calculated for every income from £100,000 upwards in £250 steps, multiplying each step by the number of taxpayers at that income. Tax revenue was then totalled for each year before the revenues were compared across the two scenarios (£100,000 freeze vs inflation-adjusted threshold rise)
- Each specific year's tax system is used — its personal allowance, basic rate limit, additional rate threshold and rates. Two changes matter particularly:
- The additional rate threshold was £150,000 until 2023-24, when it fell to £125,140.
- The additional rate itself was 50% from 2010-11 to 2012-13, falling to 45% in 2013-14.
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