Millions more workers could be dragged into the £100,000 'tax trap' by 2031 as frozen income tax thresholds continue to bite.
The number of people earning more than £100,000 is forecast to soar to 2.5 million, according to new analysis from investing and trading platform IG.
The warning comes as the Government prepares for its autumn Budget, with the prospect of further tax rises looming over households.
The £100,000 threshold has remained unchanged since it was introduced in 2010, despite wages and inflation rising sharply.
And while the main income tax thresholds are currently frozen until at least April 2031, the £100,000 Personal Allowance taper threshold is not formally part of that freeze.
However, it has no automatic mechanism for increasing, meaning it would require specific Government intervention to change.
What changes when you earn £100k?
For workers earning between £100,000 and £125,140, the Personal Allowance is reduced by £1 for every £2 earned above £100,000.
This creates an effective 60% marginal tax rate on income within that band.
In other words, a pay rise, bonus or promotion can leave some higher earners paying tax at a rate that can come as a nasty surprise.
IG estimates that if the £100,000 threshold had risen in line with inflation, it would be around £160,000 today and could reach £174,000 by 2031.
The number of people earning more than £100,000 has already risen sharply.
Around 2.06 million people now earn above the threshold, up from 1.22 million in 2021/22 and 588,000 in 2010.
IG estimates the frozen threshold has generated an additional £29 billion in tax revenue for the Government so far, compared with a scenario where it had increased in line with inflation.
The additional annual tax revenue is currently estimated at £5.2 billion, rising to £7 billion a year by 2031.
By then, IG estimates the cumulative additional revenue generated by the freeze could exceed £52 billion.
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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 .”
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