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How to beat the £100k tax trap as a HENRY

The structure of the UK tax system has led to a tricky situation for people earning £100,000 a year and just over, particularly if they have children. Here, Harry Sims of leading wealth management firm Fairstone, looks at the so-called £100k tax trap and the phenomenon of the HENRY.

The acronym HENRY – High Earner, Not Rich Yet – has gained in popularity in recent years – and for good reason.

What is a HENRY?

The term describes a growing cohort of people who look financially successful from the outside, but feel increasingly stretched once the real numbers are laid out.

HENRYs are:

• often professionals in their 30s and 40s
• progressing well in their careers
• earning six-figure incomes
• doing everything they were told should lead to financial security

Yet many describe the same frustration: earning more doesn’t feel like getting ahead.

The reason, more often than not, appears when children arrive.

The £100k tax trap and the childcare cliff edge

The UK tax system creates a sharp financial turning point around £100,000 of adjusted net income.

This is known in many circles as the £100k tax trap.

The impact on tax-free childcare

Once that threshold is crossed, families can lose access to key childcare support, including 30 hours free childcare and tax-free childcare.

This support can be worth roughly £7000 to £8000 per year for a typical nursery-age child, depending on fees and location.

The personal allowance taper

At the same time as losing this support, the tax-free personal allowance begins to taper away, reducing by £1 for every £2 earned above £100,000.

When you combine the loss of childcare support with higher effective tax rates, families can find themselves in a situation where earning more produces very little improvement in real disposable income – the £100k tax trap.

Recent commentary has highlighted how this is influencing real-life decisions.

Why earning more can leave you worse off

Some professionals are now openly questioning whether progressing beyond certain income levels actually improves their standard of living.

Real-life scenarios for HENRY families

From my perspective, this is not theoretical.

It shows up in meetings I have with clients every week.

You can see how crossing £100,000 can actually leave some families feeling worse off, which feels completely counter-intuitive.

The consequences are real: some delay having children, others decide to stop at one child.

How financial systems affect families

When financial systems create disincentives around family life, behaviour changes.

Is Elon Musk right? He has repeatedly warned about declining birth rates and long-term population trends, and while his views are often debated, the underlying point is hard to ignore: financial pressure increasingly influences family decisions.

What the £100k tax trap looks like in practice

The typical story is familiar.

A promotion or bonus pushes income above the threshold.

Nursery fees are already high and suddenly support disappears.

Monthly outgoings rise just as income is supposed to bring more comfort.

The emotional response is usually confusion, rather than tax planning ambition.

Clients aren’t trying to avoid success. They simply expected that earning more would make life easier.

Instead, they feel stuck.

This is the core HENRY experience: high income, high fixed costs and very little sense of momentum. Caught in the £100k tax trap.

The planning opportunity most high earners miss

What many families don’t realise is that the threshold is based on adjusted net income, not simply salary.

What is adjusted net income?

Pension contributions and other reliefs can materially change that figure.

This is where proper financial planning changes the conversation.

Income structuring strategies for high earners

I regularly see situations where restructuring income or increasing pension contributions improves long-term wealth, while also preserving access to childcare support.

On paper, it may look like a short-term sacrifice.

In reality, it can significantly improve both current cashflow and future financial outcomes – and free you from the £100k tax trap.

The role of cashflow modelling

When you model these decisions properly, the results are often surprising.

Families can see clearly how a relatively small structural adjustment today can reshape the next ten or 20 years.

A broader lesson for HENRYs

Childcare is simply exposing a broader issue facing high earners.

Income alone does not create financial security. 

Without structure, even strong salaries can leave households feeling dependent on the next payslip.

The childcare years are temporary, but they are often when you make the biggest financial decisions.

Done well, they become a period of acceleration, rather than pressure.

Why high salaries don’t always bring financial comfort

Many high earners assume that financial comfort arrives automatically once income reaches a certain level.

In reality, the system becomes more complex exactly at the point where family life becomes more expensive.

Finding a way out of the £100k tax trap

The solution is not to avoid earning more or to step back from progression. 

It is to understand the rules well enough to work with them, not against them.

Because, ultimately, the goal is not simply to earn well. It is to feel in control of what that income actually delivers.

How a financial adviser can help high earners

Sitting down with a professional financial adviser and looking carefully at your income and outgoings will help you create a robust, flexible financial plan – not only for when children are young, but also for your future after they have grown up.

It could free you from the £100k tax trap and help you see financial success for what it is – a boon and not a burden.

Visit www.fairstone.co.uk or call 0800 884 8040 for advice on how to approach your retirement.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, TAX OR LEGAL ADVICE. TAX TREATMENT DEPENDS ON INDIVIDUAL CIRCUMSTANCES AND MAY CHANGE. THE VALUE OF INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY NOT GET BACK THE FULL AMOUNT YOU INVESTED. PAST PERFORMANCE IS ALSO NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE. ALWAYS SEEK PROFESSIONAL ADVICE BEFORE MAKING FINANCIAL DECISIONS.

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