Bowmore Financial Planning believes that these figures raise concerns that higher rate taxpayers could be discouraged from wanting to increase their income.

The number of taxpayers caught up in the UK’s 60 per cent tax trap for high earners has increased by 23 per cent in the past 12 months, from 436,000 to 537,000, according to Bowmore Financial Planning, a London-based firm. 

A big flaw in the current income tax system means that people earning between £100,000 ($130,000) and £125,140 pay 60 per cent income tax on that slice of their earnings. This is because the tax-free personal allowance of £12,570 is gradually removed once annual earnings exceed £100,000.

Bowmore Financial Planning said the new Labour government, elected to office with a big majority of MPs on 4 July, should fix this inequality in the income tax system, because it could deter people from wanting to increase their earnings past £100,000 a year. The firm said the number of people caught in the high earner tax trap has jumped in the past year as inflation continues to drive up wages.

Other figures show how the tax net is widening. Latest figures from HM Revenue and Customs also show that inheritance tax receipts hit £1.4 billion in the first two months of the 2024/25 tax year. This is £200 million higher than the same period in the previous tax year, and continues the upward trend seen over the last two decades.

The government’s inheritance tax take is increasing largely due to years of house price rises, high inflation, and tax freezes on the IHT "nil rate" threshold which have pushed an increasing number of families, who would not see themselves as wealthy, above the threshold for inheritance tax. The tax is charged at 40 per cent above a threshold on the estate of a deceased person, set at £325,000.

Such rises in the scope and severity of the UK tax code highlight how demands for advice from wealth managers, lawyers, accountants and other specialists is likely to rise in coming months. Already, the previous Conservative government's move to end the resident non-domicile system – an initiative endorsed by the Labour Party – has prompted a flurry of activity as non-doms consider their options. 

Tax bite deepens
A similar situation has arisen for income tax. “With so many more taxpayers reaching six figure earnings, the tax trap puts higher earners at a big disadvantage,” Mark Incledon, chief executive at Bowmore Financial Planning, said. “The last government didn’t intend this but the problem has been ignored. We hope the new government can fix this as soon as possible,” he added.

“Reaching a six-figure salary has long been a major goal for a lot of people. We all understand that this comes with the obligation to pay more tax. Unfortunately, if HMRC takes 60 pence in every pound you earn above £100,000, the lure of getting there is a lot more limited,” he continued.

“With the increased cost of living eroding the real value of salary increases, the incoming government must address the tax trap for higher earners. It only disincentivises people from working harder, being more productive and ultimately generating economic growth,” Incledon said.

Bowmore Wealth Group specialises in financial planning and investment management. Bowmore Financial Planning sits inside the group and operates as a chartered financial planner for private clients, trustees and corporates.