The Big HENRY Squeeze

By now, many of us have heard of the so-called £100,000 cliff edge.

But while the headline is familiar, the full impact across different households is less well understood. What actually happens to household finances when income crosses that threshold? And why can a relatively modest pay rise leave some people feeling significantly worse off?

As part of our ongoing HENRY (High Earners, Not Rich Yet) campaign, we’ve carried out a deep dive into the topic, creating a new report - the first of its kind - examining how thresholds around £100,000 reshape outcomes for different types of households.

We’ve called this report The Big HENRY Squeeze.

And the findings are stark.

What we did

We modelled a range of scenarios to understand what happens to certain HENRY households if they cross the £100,000 adjusted net income threshold and how they compare to households who stay below that line.

Adjusted net income is your taxable income after certain deductions, such as pension contributions, and is the measure HMRC uses to determine eligibility for some tax allowances and childcare support.

Our model accounts for tax rules, childcare eligibility and household income structure to show how relatively small increases in pay can lead to disproportionate changes in take-home finances.

For simplicity, we tested two broad household structures:

• Primary-earner households - where one adult earns close to or above the £100,000 threshold and the second adult earns the minimum required to qualify for funded childcare

• Dual mid-earner households - where household income is split more evenly between two earners

We then tested the following scenarios:

The scenarios we tested

What we found

Crossing the threshold can cost families £7,500

For primary-earner households with two nursery-age children, crossing the £100,000 threshold can reduce annual household financial benefit by around £7,500.

This is primarily driven by the loss of funded childcare support once adjusted net income exceeds £100,000.

The model also suggests affected households could see annual investing capacity fall by around £600, limiting long-term wealth-building potential. With less financial headroom available, affected households have less capacity to invest for the future.

Between £100,000 and £125,140, households can face effective marginal tax rates of up to 66%, showing just how punitive the system can become around the threshold. 

The system punishes primary-earner households

Households with similar total incomes can experience very different outcomes depending on how income is structured.

For example, a primary-earner household with one earner on £110,000 and a second earner on £10,575 retains around £12,450 less annual financial benefit than a dual mid-earner household where income is split evenly between two earners on £60,000 each.

Even without children, dual-earner households where each adult earns £60,000 retain around £2,650 more annual financial benefit than equivalent primary-earner households with similar overall household income.

The findings suggest the interaction between childcare policy, tax thresholds and household income structure effectively imposes a “single-earner penalty” on many HENRY households.

Pension contributions can materially change outcomes

The analysis also demonstrates how pension contributions can help households mitigate the impact of crossing the £100,000 threshold.

For example, a primary-earner household with two nursery-age children that redirects a £10,000 pay rise into pension contributions instead of taking it as salary:

• preserves childcare eligibility

• improves annual household finances by around £3,500 compared to a household who takes it as salary

• and adds £10,000 to pension wealth

This is because pension contributions reduce adjusted net income and can keep households below key childcare thresholds.

In short, how income is taken can matter almost as much as how much is earned.

So what does it all mean?

The numbers point to a clear conclusion: the current system creates sharp, unintended penalties around ambition and progression.

That’s why we are calling for a series of reforms to create a fairer system and unlock the investing and growth potential of HENRY households:

• Move childcare thresholds in line with inflation

• Smooth the personal allowance cliff edge

• Introduce a UK Equities Investment Scheme

• Keep pension salary sacrifice flexible

Read more about IG’s HENRY campaign here.