A warning has been issued to millions of people who could be losing £255,000 over a pension “tax trap”. Taxpayers earning over £100,000 a year could forfeit hundreds of thousands of pounds.
Rathbones, a wealth and asset management group, warned that people caught up in the so-called £100,000 tax trap could lose £255,358 over two decades if they do not reclaim additional relief on their pension contributions.
According to the financial services company, the number of taxpayers earning £100,000 is expected to nearly double, rising from 1.218 million in 2021/22 to 2.293 million by 2028/29.
The expected increase comes amid growing tax burdens caused by frozen income tax thresholds, which are pushing more earners into higher tax bands, and the loss of key benefits such as childcare support, reports Birmingham Live.
Parents who earn over £100,000 a year can end up losing childcare worth almost £20,000 for two children under five.
Olly Cheng, senior financial planning director at Rathbones, said: “Earning £100,000 once felt like financial freedom, but today it often comes with a hidden tax sting.
“Frozen thresholds are inflating tax bills, dragging more people into higher bands, while inflation erodes the real value of earnings. This has created a generation of HENRYs – high earners, not rich yet – where those on strong salaries struggle to build wealth because of the double hit of a growing tax burden and the corrosive effect of inflation.”
Mr Cheng said that fiscal drag has become one of the most damaging factors in the cost-of-living crisis.
“What was once considered a ‘stealth tax’ is now widely understood and much maligned. By 2028/29, nearly 2.3 million taxpayers are expected to earn above £100,000 – almost half a million more than the estimate for the current tax year – and for families with young children, this will be particularly painful.
“With bonus season approaching, what looks like a reward can quickly turn into a tax shock.”
Rathbones stated that the number of individuals earning £120,000 or more is also forecasted to increase by 100,000, reaching 1.4 million by 2026/27, a 7.7% rise from the current tax year’s estimate.
