Pressure is mounting on the government to address the so-called 60% marginal tax rate, a measure affecting increasing numbers of higher-income earners.
More than two million people are estimated to be caught by this effective tax rate in the 2026–27 tax year, as calculations by HM Revenue and Customs have shown.
Industry groups and campaigners warn that the removal of the tax-free personal allowance at certain income levels is discouraging investment, hindering productivity, and negatively impacting household finances.
High Marginal Tax: Facts and Impact
Individuals earning between £100,000 and £125,140 annually in the UK see their tax-free personal allowance withdrawn by £1 for every £2 earned above £100,000.
This leads to an effective marginal income tax rate of 60% on each additional pound in this range. According to HM Revenue and Customs data provided to financial advice firm NFU Mutual, 2.1 million people will lose part or all of their personal allowance in the coming tax year.
Of these, around 801,000 are expected to lose some of the allowance, while 1.26 million will lose it entirely. This effect has intensified over the past decade, with the income threshold frozen since 2010 despite rising average earnings and inflation.
The Mechanics of the 60% Tax Trap
The personal allowance, currently set at £12,570, is gradually reduced for higher earners, disappearing completely at £125,140.
As a result, those earning within this range are subject to a combination of income tax and National Insurance rates that can leave them with just 38p from every additional pound earned, once the 2% National Insurance is included. Analysis indicates that, if the threshold had kept pace with inflation since 2010, it would now be close to £156,000.
Effects on Investment and Aspiration
The high marginal rate has drawn criticism from investors and financial advisers, who argue it undermines incentives to work and save. A survey by IG Group found that half of workers do not believe they can save enough wealth due to tax pressures, with this figure rising to 92% among families with nursery-aged children.
Many households report changing their work patterns, turning down promotions, bonuses, or pay increases to avoid crossing the threshold. Investment platform IG Group has highlighted concerns that freezing both tax and childcare thresholds are particularly discouraging for mid-career professionals an important demographic for UK retail investment growth.
Policy Background and Political Debate
The phased removal of the personal allowance was introduced in the wake of the 2008 financial crisis as a temporary measure, but it has since become a permanent feature of the tax system.
Initially, the additional rate of income tax above £150,000 was 50%. This was later reduced to 45p by former Chancellor George Osborne, with the threshold subsequently lowered to £125,140.
Chancellor Rachel Reeves has faced renewed calls to review this system, particularly as the Office for Budget Responsibility (OBR) confirmed it will analyse high marginal tax rates and their economic effects. In its Spring Statement, the OBR announced an upcoming report comparing the UK's marginal tax rates with those in other developed countries.
Responses and Next Steps
Campaigners and tax experts argue that reform is needed to restore incentives for higher earners. Sean McCann, a chartered financial planner at NFU Mutual, stated, “It's the ambition of many people to reach an income of £100,000, but it comes with an unexpected sting in the tail.”
Analysts warn that, with income thresholds remaining frozen until at least 2031, more taxpayers will fall into the high marginal rate bracket. The OBR projects that the proportion of people subject to higher or additional tax rates will rise from 15% in 2021–22 to 24% by 2030–31.
Final Summary
The 60% marginal tax rate continues to provoke debate among taxpayers, policymakers and economists. As more individuals fall into this bracket due to frozen thresholds, pressure is rising for the government to review the existing approach.
With the Office for Budget Responsibility set to undertake further analysis, attention is likely to focus on how best to balance tax revenue with incentives for investment, savings, and productivity.
For those seeking to manage their exposure, pension contributions and charitable giving remain key tools highlighted by financial experts. For further personal finance tools and updates, readers may wish to explore resources available through the Pie app.
