Millions of workers face losing 62p of every extra pound they earn.
A frozen tax threshold, stuck at £100,000 since 2010, is dragging an ever-growing number of earners into one of the steepest marginal tax rates in the system.
By 2031, some 2.5 million people will be caught by this cliff edge, according to analysis from IG published today.
That represents a rise of 200,000 from current levels, driven by wage growth pushing more earners past the unchanged threshold.
Around two million taxpayers already fall into the trap. HMRC projections suggest this will climb to 2.3 million within three years before reaching the 2.5 million mark by the end of the decade.
Former chancellor Rachel Reeves locked in the freeze until at least April 2031 at her final Budget.
The punishing rate stems from a quirk in the tax code. Between £100,000 and £125,140, the tax-free personal allowance is gradually withdrawn, meaning income tax and National Insurance together consume 62p of each additional pound earned.
Childcare benefits also vanish entirely once either parent’s salary reaches £100,000.
Had the threshold kept pace with inflation over the past 16 years, workers would only begin losing their personal allowance at roughly £160,000 today. By 2031, an inflation-linked figure would likely stand at around £174,000.
When the trap was originally introduced, fewer than 600,000 people earned enough to be affected, representing just 1.9 per cent of all taxpayers. That share has since tripled to 5.6 per cent.
Childcare benefits also vanish entirely once either parent’s salary reaches £100,000
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GETTYMichael Healy, of IG, said: “The £100,000 threshold is becoming increasingly detached from reality. It has been frozen since 2010, a time when Gordon Brown was our prime minister and Gary Neville still played for Manchester United.
“Wages and inflation have risen sharply since that distant time, meaning millions more people have been dragged into a tax trap, or otherwise stunting their career development to avoid it.”
Experts warn the freeze is discouraging workers from pursuing promotions or pay rises that would tip them over the six-figure mark.
Sarah Coles, of investment platform AJ Bell, said: “It means a measure that was designed to catch only super-high earners at the top of their profession could now hit senior employees with a couple of decades of experience under their belt including head teachers and newly promoted NHS consultants with no private work.”
IG estimates that keeping the threshold frozen will generate an additional £7bn a year in tax revenue by 2031
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GETTYThe analysis lands ahead of Prime Minister Andy Burnham’s first Budget in October, with the Government widely expected to announce fresh tax rises.
IG estimates that keeping the threshold frozen will generate an additional £7bn a year in tax revenue by 2031.
One popular escape route is also being curtailed. Ms Reeves announced in November that from April 2029, a £2,000 cap would apply to workplace pension contributions made through salary sacrifice before National Insurance becomes payable.
That change is expected to raise bills for around 3.3 million workers.
Former chancellor Rachel Reeves locked in the freeze until at least April 2031 at her final Budget
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GETTYA Treasury spokesman said: “We are protecting payslips by keeping our promise not to raise income tax, National Insurance or VAT.
“The personal allowance is reduced for those with incomes over £100,000 to ensure support is focused where it’s most needed, including funding public services.”