Why earning over £100k can make it harder to build wealth

How to manage your income and investing around the £100k threshold

The £100,000 threshold can create a set of financial trade-offs that are not always obvious at first glance. As outlined in our previous article, higher earnings do not always translate into higher take-home pay.

While IG is calling for reforms to address these distortions, policy change will take time. In the meantime, there are steps individuals can take to better manage their position and build long-term wealth.

Understanding your position

A useful starting point is understanding how your income is assessed. Many of the rules linked to the £100k threshold are based on adjusted net income, which includes not only salary but also bonuses, investment income and other earnings, minus certain deductions such as pension contributions or charitable donations.

Managing this figure can have a meaningful impact on both tax liabilities and eligibility for support. Even relatively small changes can determine whether you remain above or below key thresholds, which in turn affects how much income you ultimately keep.

Managing income and reducing the impact

One of the most effective ways to manage income around the threshold is through pension contributions. Increasing contributions can bring adjusted net income down, helping to restore personal allowances or retain access to certain benefits, while also strengthening long-term retirement savings. For those in the effective 60% tax band - closer to 62% when National Insurance is included, and higher still if student loan repayments apply - this can be particularly efficient, as tax relief means a greater proportion of income is preserved for the future.

Salary sacrifice arrangements can offer a similar outcome by exchanging part of a salary for benefits such as pension contributions, reducing both taxable income and National Insurance liabilities. However, it is important to be aware of upcoming changes. From April 2029, National Insurance relief on salary sacrifice pension contributions will be capped at £2,000 per year, which may reduce the effectiveness of this approach for higher earners making larger contributions.

Charitable giving can also play a role. Donations made through Gift Aid reduce adjusted net income and provide additional tax relief for higher-rate taxpayers, allowing individuals to support causes they care about while also improving their overall tax efficiency.

Where income is variable, such as through bonuses or dividends, timing can also be a consideration. In some cases, it may be possible to defer income or spread it across tax years to avoid crossing thresholds in a single period, although this will depend on individual circumstances.

Keeping more of what you invest

Alongside managing income, how investments are structured is equally important. Tax-efficient investing focuses on how investments are held, using allowances and wrappers such as ISAs and pensions to reduce unnecessary tax on returns.

Over time, tax can have a significant impact on investment growth. When a portion of returns is paid in tax rather than reinvested, the base for future growth is reduced, which can affect long-term outcomes. Using tax-efficient investment wrappers can help ensure more of any gains or income remain invested, supporting compounding over time.

A Stocks & Shares ISA is one of the most effective ways to do this. It allows you to invest in shares, funds, bonds and other assets within a tax-free wrapper, meaning any growth or income is sheltered from UK tax. This can be particularly valuable for higher earners, who may otherwise face higher rates of tax on dividends and capital gains.

Over time, this tax advantage can make a meaningful difference. By keeping more of your returns invested rather than lost to tax, the benefits compound - particularly for those investing larger amounts each year.

For individuals already facing reduced disposable income around the £100k threshold, making the most of what is invested becomes even more important. Using tax-efficient accounts can help ensure that more of that capital is working over the long term.

As with all investing, values can fall as well as rise, and Stocks & Shares ISAs are typically more suited to those with a longer-term horizon.

Taking a balanced, long-term view

Managing your position around a £100,000 annual salary often involves balancing short-term efficiency with long-term goals. Reducing taxable income can improve immediate outcomes, but it is important to ensure this aligns with wider financial objectives.

Pension contributions support long-term retirement planning, while ISAs offer greater flexibility and accessibility. Taking a considered approach can help ensure that decisions made today continue to support financial resilience in the future.

Until changes are made to address the cliff edge, taking a more active approach to managing income and investments can help reduce its impact. Understanding the options available - and how they apply to your individual circumstances - is an important step in continuing to build wealth over the long term. 

Tax treatment depends on individual circumstances and may change. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.