‘Punishing’ Autumn Budget tax trap set to deal further blow to HENRYs
Thousands of UK workers are set to face an effective 64 per cent tax rate on their cash savings under a fresh tax raid launched by John Healey in his maiden Budget. The Chancellor confirmed he will hike taxes on savings by a further two per cent in April 2027, taking the rate to 44 [...]
The Autumn Budget announced by Chancellor John Healey has introduced a new tax trap, targeting UK workers' savings. The tax rate on savings will increase by 2%, reaching 44% for higher and additional rate taxpayers in April 2027. For those earning over £100,000, the tax-free personal allowance is reduced further by £1 for every £2 earned above the limit. This leads to a 64% effective marginal rate on savings interest for those with incomes close to the threshold.
High earners, not yet rich (HENRYs) earning £110,000, are expected to bear the brunt of this tax hike. They face a complex situation where their personal allowance is wiped out by their salary, leaving them to pay a higher rate on any savings interest above the £500 allowance. This results in an effective 64% marginal rate, which is 15 percentage points higher than someone earning nearly double their pay.
The tax hike exacerbates financial pressures for HENRYs, many of whom have lost free childcare hours upon surpassing the £100,000 earnings threshold. Over 90% of those who have crossed the threshold reported that this has made it difficult for them to build long-term wealth or invest. Half of these individuals stated that they would invest more if crossing the threshold did not result in losing their free childcare.
Chancellor Healey's tax hike creates a system that undermines efforts to encourage investment and makes it harder for people to improve their financial situation.
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