If you’re earning decent money but still feel far from “rich,” brace yourself. The Autumn Budget just dealt a serious blow to your wallet. High earner households—dubbed HENRYs (High Earners, Not Rich Yet)—could lose over £15,000 in purchasing power by 2029, thanks to Rachel Reeves’ tax freezes and fiscal drag. While the Chancellor technically avoided hiking income tax rates, frozen thresholds and sneaky policy tweaks mean your money won’t stretch as far. Here’s what’s happening and why it matters to anyone earning above average.
The Budget’s Hidden Punch: What’s Actually Happening
Rachel Reeves delivered a Budget that looked restrained on paper but packed a serious punch for higher earners. The damage? It’s all about what didn’t change.
Income tax thresholds remain frozen until 2028, dragging more earners into higher tax brackets as wages rise with inflation. Meanwhile, taxes on dividends and savings outside tax-free wrappers like ISAs and pensions just got more expensive.
Chris Beauchamp, chief market analyst at IG, nailed it: “While the Chancellor met her fiscal rules and avoided increases to income tax or national insurance, the combination of policy measures and frozen thresholds will have a disproportionately large effect on HENRY households.”
Translation? You’re paying more tax without anyone technically raising rates. Clever, but painful.
Who’s Getting Squeezed the Hardest?
Let’s break down the damage by income bracket.
Middle-High Earners (£65,700 Average Income)
If you’re earning around £65,700—solid money, but hardly oligarch territory—you’ll receive zero net support from Budget decisions. The income tax threshold freeze hits hard, and higher taxes on dividends and savings mean your investments earn less after tax.
Additional Rate Taxpayers (£103,700)
Earning just over £100k? You’ll face an average annual loss of 0.3% of your income. Not catastrophic, but it adds up.
Higher Rate Taxpayers
By 2029, higher rate taxpayers will see their purchasing power drop by an average of £8,395. That’s a holiday, a car, or a chunk of your kid’s university fees—gone.
Top Earners
The real sting? Top earners face a staggering £15,658 reduction in purchasing power by 2029. When inflation and fiscal drag team up, the squeeze is brutal.
The £8bn Stealth Tax Nobody Voted For
Here’s where it gets political. Many argue that extending the threshold freeze breaks Labour’s manifesto pledge. The so-called “stealth tax” will drag 920,000 more Brits into the 40% tax bracket—people who never expected to be “high earners” by tax standards.
Beauchamp puts it bluntly: “Many in these income bands carry high living costs and wouldn’t recognise themselves as ‘rich’. Once inflation and fiscal drag are factored in, the squeeze on real disposable income will feel significant, forcing some households to reassess spending, saving and long-term financial plans.”
If you’re living in expensive areas, juggling childcare, or supporting family, that extra tax bite hurts—even on a six-figure salary.
The Government’s Plan: Push You Into Stocks
There’s method to this madness. The tax changes are part of Reeves’ strategy to nudge Brits away from cash savings and into stock market investing.
The Chancellor plans to slash the cash ISA allowance to £12,000 for under-65s and roll out targeted investment support schemes by 2026. The message is clear: park your money in markets, not mattresses.
IG agrees with the strategy, at least in principle. Beauchamp says: “Households in this bracket should be motivated to become more engaged with investing as they recognise that growing and protecting whatever wealth they can is increasingly crucial.”
But there’s a catch. Squeezed disposable incomes mean less cash available to invest. You can’t invest what you don’t have left over at the end of the month.
What Should High Earners Do Now?
If you’re in the firing line, here are practical moves to consider:
Maximise tax-free wrappers. Load up your ISAs and pensions before thresholds potentially change. These remain your best defence against tax erosion.
Review your investment strategy. With cash savings taxed harder, diversifying into stocks and shares ISAs makes more sense—if you have the risk appetite and time horizon.
Plan for fiscal drag. Assume your effective tax rate will creep up over the next few years. Budget accordingly and don’t get caught off guard by shrinking take-home pay.
Consider salary sacrifice schemes. Pension contributions through salary sacrifice can help you stay below higher tax thresholds while boosting retirement savings.
The Bottom Line
The Autumn Budget didn’t raise headline tax rates, but high earners are still facing a substantial hit to their purchasing power. Between frozen thresholds, fiscal drag, and higher taxes on savings and dividends, HENRYs could lose thousands by 2029.
Whether this pushes more people into stock market investing or just squeezes household budgets remains to be seen. Either way, if you’re earning above average, now’s the time to review your finances and make sure you’re not leaving money on the table.
Want to protect your wealth? Start by understanding where you’re exposed and take action before 2029 arrives.
FAQ
Q1: What does HENRY mean in finance?
A: HENRY stands for “High Earners, Not Rich Yet.” It refers to individuals or households earning well above average (typically £65,000-£150,000) but who don’t yet have significant accumulated wealth due to high living costs, debt, or limited savings.
Q2: How does fiscal drag affect my taxes?
A: Fiscal drag occurs when tax thresholds stay frozen while wages rise with inflation. You effectively pay more tax as your income pushes into higher brackets, even though your real purchasing power hasn’t increased. It’s a stealth tax that hits harder over time.
Q3: Will the income tax threshold freeze really last until 2028?
A: Yes, the current freeze is set to remain until 2028. This means 920,000 more people will be pulled into the 40% tax bracket by then, significantly increasing their tax burden without any official rate rise.
Q4: Should I move my savings from cash ISAs to stocks and shares ISAs?
A: It depends on your risk tolerance and time horizon. The Budget’s tax changes make cash savings less attractive, but stocks carry more risk. If you won’t need the money for 5-10 years and can handle volatility, stocks and shares ISAs offer better growth potential.
Q5: How can I reduce my exposure to these Budget changes?
A: Maximise contributions to tax-free wrappers like ISAs and pensions, consider salary sacrifice schemes, and review your investment allocation. Planning ahead and using available tax reliefs can help offset some of the purchasing power loss.
DISCLAIMER
Effective Date: 15th July 2025
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