Overview: A growing group earning beyond the £100,000 mark
Britain is witnessing a significant share of workers crossing the £100,000 annual earnings threshold. While this milestone signals higher income for many, it also ushers in a complex tax landscape. For the roughly 2 million people earning between £100,000 and £125,140, the marginal tax rate on the next pound of income rises sharply due to the combination of income tax and National Insurance contributions (NICs). When student loan repayments are factored in, the effective bite on take-home pay can feel punishing. This article unpacks who is affected, how the taxes stack up, and what it means for financial planning.
How the tax and NI bands work for high earners
The UK income tax system uses bands. Once personal allowance is tapered for high earners, income above £50,270 (for most taxpayers) is taxed at higher rates. For those earning between £100,000 and £125,140, the marginal rate is not just income tax at 40% (or 45% for additional rate taxpayers) but also National Insurance. The NI ceiling for employees means contributions rise with income and cap at a monthly limit; however, those approaching the threshold can see a steep increase in overall deductions as the two systems interact. In practical terms, this means a single additional pound earned in this band can be taxed at around 60% to 62% once NICs are included. For graduates with student loans, repayments add another layer of cost, further reducing take-home pay.
Why the marginal rate climbs so quickly
Several design features of UK taxation collide at these earnings: the tapering of the personal allowance, the ice-cream scoop of the higher-rate tax bands, and NICs that continue to climb with income before hitting any caps. The result is that an extra pound earned in this zone often leaves a notably smaller increase in net income than one might expect. This is sometimes described as a “tax trap” because small gains in salary can be offset by a large proportion of the next pound going to the Treasury.
Student loan repayments: the extra drag for graduates
Graduates with student debt face another hurdle. Depending on the repayment plan, earnings above a threshold trigger monthly or annual repayments that are calculated as a percentage of income. For higher earners, this can add several hundred pounds or more per year to the overall deductions. When combined with income tax and NICs, the total marginal cost of an extra £1 can be severe, influencing decisions about career moves, bonuses, or supplementary income streams.
Practical implications for workers
High earners should consider several practical steps. First, review the timing of salary changes, bonuses, or stock awards to optimize tax outcomes within the law. Second, ensure pension contributions are used strategically, as higher rate relief on pension savings can improve long-term wealth despite short-term cash-flow pressures. Third, explore approved discrimination-free deductions and allowable expenses (where relevant) to reduce taxable income legitimately. Finally, stay informed about changes in tax bands and student loan policies, which can shift the financial picture year by year.
Policy context and what to watch
The tax system continually evolves, with debates about how to balance revenue needs and incentives for work. Proposals to reform NI thresholds, adjust personal allowances, or restructure student loan repayment terms could change the calculus for high earners. For now, families and individuals at this income level should plan carefully, ideally with a tax advisor, to navigate the marginal rates, NICs, and loan repayments that shape take-home pay.
Conclusion: Understanding the cost of higher earnings
Earning more than £100,000 is a milestone that comes with additional financial responsibility. While higher earnings bring greater financial opportunities, the combined weight of income tax, National Insurance, and student loan repayments can noticeably erode the additional income. Awareness of these dynamics helps earners make informed decisions about compensation, benefits, and long-term savings strategies to optimize their financial well-being.
