The Hidden Costs of Living in London: Why £147K Isn't Enough to Feel Rich
- Hugo M
- Dec 27, 2025
- 4 min read
Earning £147k a year in London sounds like a dream salary. For many HENRYs (High Earners, Not Rich Yet), it feels like the gateway to financial freedom and a comfortable lifestyle. But the reality is far more complicated. Despite the impressive number on your payslip, the tax burden, living expenses, and lifestyle costs in London quickly chip away at your income. This post explores why £147k doesn’t necessarily make you feel rich in London, the tax reality behind it, and practical changes you can make to improve your financial situation.
Why £147k Feels Less Than It Is
When you hear £147k, you might imagine a life of luxury: a spacious flat in Kensington, dining out every night, and weekend trips abroad. But the truth is that London’s cost of living is one of the highest in the world. Here’s why £150k doesn’t stretch as far as you might expect:
High taxes: Income tax and National Insurance contributions take a big chunk out of your salary.
Housing costs: Rent or mortgage payments in London are sky-high, often consuming 40-50% of your take-home pay.
Everyday expenses: Transport, groceries, utilities, and childcare are all more expensive than in other parts of the UK.
Lifestyle inflation: As your income rises, so do your spending habits, often without you noticing.
The Tax Reality for a £147k Earner
Let’s break down the tax situation for someone earning £147k in London. The UK tax system is progressive, meaning the more you earn, the higher the percentage you pay on the top portion of your income.
Income tax: At £147k, you fall into the higher and additional rate tax brackets. The first £50,270 is taxed at 20%, the next £99,730 at 40%, and income above £125,140 at 45%.
National Insurance (NI): You pay 12% NI on earnings between £12,570 and £50,270, and 2% on anything above that.
Effective tax rate: After all deductions, your effective tax rate can be around 40-45%, meaning you take home roughly £85k-£90k.
For comparison, someone earning £100k takes home about £68k after tax, and at £125k, the take-home is around £75k. The jump from £100k to £147k doesn’t feel as big once taxes are factored in.
Housing Costs Eat Up Your Income
One of the biggest drains on your salary is housing. Renting or buying in London is expensive, and it’s often the first place where your £147k salary feels tight.
Rent: A one-bedroom flat in central London can cost £1,500 to £2,500 per month. For a family, a two or three-bedroom flat easily costs £3,000+.
Mortgage: Buying a property requires a hefty deposit, and monthly repayments on a £500k+ mortgage can be £2,000 or more.
Council tax and utilities: These add hundreds of pounds monthly to your housing costs.
If you spend £2,500 on rent alone, that’s £30,000 a year—more than a third of your take-home pay.
Other Living Expenses That Add Up
Beyond housing, other costs in London are higher than the UK average:
Transport: A monthly travelcard for zones 1-3 costs about £150.
Groceries: Food prices in London are roughly 10-15% higher than elsewhere.
Childcare: For HENRYs with kids, childcare can cost £1,000+ per month.
Leisure and dining out: London’s vibrant social scene comes with a price tag, with meals and drinks often costing double what they would outside the city.
These expenses quickly add up, leaving less room for savings or investments.
What Changes Can You Make?
If you’re earning £147k but don’t feel rich, there are practical steps you can take to improve your financial situation.
1. Review Your Housing Situation
Consider moving slightly outside central London where rents are lower but transport links remain good.
Explore shared ownership or buying a smaller property to reduce mortgage costs.
Negotiate rent or look for deals if you’re renting.
2. Maximise Tax Efficiency
Use your ISA allowance to save tax-free.
Contribute to a pension scheme to reduce taxable income.
Speak to a financial advisor about salary sacrifice schemes or other tax-efficient options.
3. Control Lifestyle Inflation
Track your spending to identify areas where you can cut back.
Set clear budgets for dining out, travel, and entertainment.
Prioritise saving and investing over upgrading your lifestyle.
4. Build Multiple Income Streams
Consider freelance work or side projects to supplement your income.
Invest in property or stocks to generate passive income.
Use your skills to create additional revenue without increasing your tax burden significantly.
Why £147k Is Just a Step on the Ladder
For many HENRYs in London, £147k feels like a milestone rather than a destination. It’s a salary that demands smart money management to build real wealth. The tax reality and high living costs mean you need to be strategic about spending, saving, and investing.
If you’re earning £100k or £125k, the jump to £150k is significant but doesn’t guarantee financial comfort without changes. Understanding where your money goes and making informed decisions can help you feel richer, even if your salary stays the same.
Keep in mind, wealth is about what you keep, not just what you earn.
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