High earners striving to build wealth, dubbed “Henrys” (high earner, not rich yet), may find their tax position changes drastically as their income grows. Being aware of your tax liability now and in the future could allow you to create a financial plan that helps you get more out of your money by potentially reducing your tax bill.

There isn’t a clear definition of how much you need to earn to be a Henry or what constitutes being “wealthy”. A huge range of factors could affect your financial position, from where you live in the UK to your long-term goals.

According to a February 2025 study from HSBC, people in the UK believe you need an average annual income of £213,000 to be wealthy. The figure is around six times the national average income and represents the top 4% of earners.

However, even people earning below this threshold could find they’re affected by high-earner tax rules. As a result, you may benefit from regular reviews.

If you’re a Henry, here are four tax rules that might affect your long-term finances.

1. The “60% tax trap” may affect you if your salary exceeds £100,000

A key tax implication of becoming a high earner is losing the Personal Allowance – the amount you can earn each tax year before Income Tax is due. This could mean you fall into the “60% tax trap”.

While there isn’t an official tax rate of 60% on earnings, tax rules may mean you end up paying more Income Tax than you expect. Indeed, a December 2024 report in the Financial Times suggests the number of people affected increased by 45% between 2021/22 and 2023/24.

For every £2 you earn above £100,000, you lose £1 of the Personal Allowance, which is £12,570 in 2025/26. So, once you’re earning £125,140 or more, you don’t have any Personal Allowance.

In real terms, this means for every £100 you earn between £100,000 and £125,140, you pay Income Tax of £40 and lose another £20 because of the tapering of the Personal Allowance. As a result, you’re effectively paying 60% tax on this portion of your income.

Depending on your circumstances, there are some steps you might take to beat the 60% tax trap, including:

• Increasing your pension contributions
• Making charitable donations from your salary
• Using a salary sacrifice scheme, where you’d agree with your employer to give up a portion of your salary in return for other benefits, such as higher pension contributions or a company car.

It’s important to weigh up the pros and cons of these options, and there might be other ways to manage your Income Tax liability. Please get in touch if you have any questions.

2. Your pension Annual Allowance could fall to £10,000

The pension Annual Allowance is how much you can tax-efficiently contribute to your pension each tax year. For most people, the Annual Allowance is £60,000 in 2025/26.

However, the Annual Allowance is gradually reduced if you’re a high earner. If your threshold income is more than £200,000 or your adjusted income (your income plus the amount your employer pays into your pension) is above £260,000, you’ll normally be affected by the Tapered Annual Allowance. It reduces your Annual Allowance by £1 for every £2 your adjusted income exceeds the threshold.

The maximum reduction is £50,000. So, if your adjusted income is £360,000 or more, your Annual Allowance would be just £10,000.

As a result, it could significantly affect how you might effectively save for retirement.

3. Parents may pay the High Income Child Benefit Charge

Parents claiming Child Benefit may be subject to the High Income Child Benefit Tax Charge, if one of them earns more than £60,000 a year.

Importantly, the tax charge applies if one of the parent’s income exceeds the threshold, rather than the household income. So, if both parents worked and earned £55,000 each a year, the High Income Child Benefit Tax Charge would not be applied.

The Income Tax charge would be 1% of your Child Benefit for every £200 of income between £60,000 and £80,000. The charge will never exceed the amount of Child Benefit you receive and is usually paid through a self-assessment tax return.

While you wouldn’t receive any Child Benefit if you or your partner’s income exceeds £80,000, you may still claim it for National Insurance (NI) credit purposes. For example, if one partner is not employed because they’re caring for the child, claiming Child Benefit may mean they receive NI credits.

To receive the full State Pension, you usually need 35 years of NI credits on your record. As a result, claiming Child Benefit, even if you exceed the threshold, could be important for your or your partner’s future State Pension entitlement. While the State Pension often isn’t enough to retire on alone, it could still play a valuable role in your long-term financial security.

4. Inheritance Tax could reduce how much you leave behind for loved ones

If you’re still building wealth, it might feel too early to think about how you’d like to pass it on to loved ones in the future. Yet, establishing an estate plan now can be valuable and evolve as your wealth changes.

In 2025/26, the nil-rate band is £325,000. If the total value of your estate is below the threshold, no Inheritance Tax (IHT) would be due when you pass away.

In addition, some estates may be able to use the residence nil-rate band if the main home is left to direct descendants, such as your children or grandchildren. In 2025/26, this is £175,000. However, the residence nil-rate band is reduced by £1 for every £2 that the estate exceeds £2 million.

You can pass unused allowances to your spouse or civil partner, so an estate may be worth up to £1 million before IHT is due. Yet, the threshold for paying IHT could be significantly lower if you’re not estate planning with a partner or the estate isn’t eligible for the residence nil-rate band.

With a standard tax rate of 40% applied to the portion of the estate that exceeds the threshold, your loved ones could face a hefty bill.

The good news is that there are often steps you can take to reduce a potential IHT bill if you’re proactive. So, if you’re a Henry, making estate planning part of your tax considerations now could be useful in the long run and enable you to pass on more to your loved ones.

Contact us to talk about your tax liability  

Reducing your tax liability now could mean you have more opportunities to invest or build long-term wealth, as well as potentially pass more on to your loved ones. If you’d like to create a tailored financial plan that considers your tax position, please get in touch.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

The Financial Conduct Authority does not regulate estate planning or tax planning.