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

What changes after £100,000?

Once income exceeds £100,000, several financial benefits begin to reduce or disappear:

• Personal allowance is withdrawn: For every £2 earned above £100,000, £1 of the tax-free allowance is lost, creating an effective marginal tax rate of up to 60% between £100,000 and £125,140. When National Insurance is included, this rises to around 62%, and for Scottish taxpayers the combined marginal rate in this band can reach approximately 69.5%.

• Tax-free childcare is lost: Worth up to £2,000 per child per year (or £4,000 for disabled children), this support is no longer available once adjusted net income exceeds £100,000 for one parent.

Free childcare hours are reduced: Since September 2025, eligible working parents can access 30 hours of funded childcare from when their child is nine months old. This support is withdrawn once adjusted net income of one parent exceeds £100,000.

Many households will already have been affected by earlier cliff edges, such as the High Income Child Benefit Charge, which begins at £60,000 and fully removes child benefit by £80,000.

Taken together, these changes mean that an increase in salary does not always lead to an increase in take-home income. In some cases, households can be financially worse off after crossing the threshold, once higher taxes and the loss of support are accounted for.

This is particularly relevant for so-called HENRYs - high earners, not rich yet - who are often managing mortgages, childcare costs and other financial commitments while looking to increase their long-term savings and investments.

How this impacts investing 

IG research among individuals earning between £90,000 and £125,000 highlights how these pressures are affecting financial behaviour. Nearly half (48%) of respondents said they are not able to invest as much as they would like to build future wealth. Among those with nursery-age children, the proportion rises to 92%, reflecting the additional impact of childcare costs.

The reduction in disposable income comes at a point when many would typically expect to increase their investment contributions. Higher earnings would usually support greater allocations to ISAs, pensions or other long-term investments, but where income is effectively reduced, that progression can be interrupted.

When earning more can mean taking home less

In some cases, the financial impact is substantial. IG analysis indicates that a household with two nursery-age children could be more than £13,000 worse off after crossing the £100,000 threshold, once both tax and childcare changes are taken into account.

These dynamics are also influencing behaviour. A large majority (82%) of HENRYs surveyed said they have previously taken steps to remain below the £100k net income threshold, including reducing working hours, turning down promotions or declining additional income. This suggests that the structure of the system is not only affecting household finances, but also shaping career decisions.

A wider impact on investing

From a broader perspective, this has implications for long-term investing. Individuals in this income bracket (earning over £100k) - numbering over 2.3 million by 2028-29 - should be well placed to drive an increased participation in financial markets But where their ability to invest or incentive to earn more is reduced, it will limit both individual wealth accumulation and wider engagement with investing in the UK.

Understanding how the £100,000 threshold operates - and the combined effect of higher taxes and withdrawn support - is therefore important in assessing how the current system influences both financial outcomes and long-term investment behaviour.

What needs to change

The £100k cliff edge is not a new issue, but its impact is becoming increasingly clear. If the UK wants to support long-term investing and remove distortions around career progression, there is a strong case for reform.

IG is calling for four key changes:

• Raise the childcare eligibility threshold in line with inflation
  The £100,000 cap has remained frozen since April 2010. If uprated, it would now sit significantly higher, reducing the sudden loss of support for working families

• Adjust the personal allowance taper
  The current taper creates an effective 60% marginal tax rate between £100,000 and £125,140. Updating thresholds would reduce this distortion

• Encourage greater investment in UK markets
  Introducing targeted incentives to support long-term investment - particularly in UK equities - could help increase participation

Protect tax-efficient saving mechanisms
Maintaining access to tools such as salary sacrifice ensures individuals can manage their income and continue investing efficiently

What you can do next

While policy reform will take time, there are steps individuals can take to better manage their tax position and continue building long-term wealth.

You can find out more in our guide to navigating the £100k threshold and making the most of your income in our next article.

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