What is the 40% Tax Bracket?
Income taxed at 40% applies only to your taxable income above the higher‑rate threshold
What Is the 40% Tax Bracket? — The UK Higher‑Rate Income Tax Explained
Quick Overview
In the UK, the 40% tax bracket refers to the higher-rate income tax band. For the 2025/26 tax year, this applies to taxable income between £50,271 and £125,140.
It's important to understand that the 40% rate is not applied to your entire income, but only to the portion that falls within that specific range.
The UK Income Tax Bands
The UK operates a progressive income tax system, meaning different portions of your income are taxed at different rates:
|
Band |
Taxable Income |
Tax Rate |
|---|---|---|
|
Personal Allowance |
£0 – £12,570 |
0% |
|
Basic Rate |
£12,571 – £50,270 |
20% |
|
Higher Rate |
£50,271 – £125,140 |
40% |
|
Additional Rate |
Over £125,140 |
45% |
You are only taxed 40% on the portion of income that falls within the higher-rate band, not on your total income.
Marginal vs. Effective Tax Rates
Your marginal tax rate is the rate applied to your next pound earned. If you’re within the 40% bracket, then your marginal rate is 40%.
Your effective tax rate is the average rate across your total income. It’s always lower than your marginal rate because lower rates apply to income within earlier bands.
Real‑Life Example: Clarifying the Numbers
Scenario:
Total annual income: £90,000
No other taxable income
Breakdown:
First £12,570 – tax-free (Personal Allowance)
Next £37,700 taxed at 20% = £7,540
Remaining £39,730 taxed at 40% = £15,892
Total Income Tax Paid: £23,432
Effective Tax Rate: ~26%
This shows how income is split between bands and why your overall tax burden is less than 40%.
Why More People Are Paying 40% Tax
Frozen Tax Thresholds
The government has frozen the income tax thresholds until April 2028. With inflation and rising wages, more people are being pulled into the higher-rate bracket — a phenomenon known as fiscal drag.
Loss of Personal Allowance Over £100,000
Once your income exceeds £100,000, your personal allowance begins to reduce by £1 for every £2 earned above that amount.
This creates an effective marginal tax rate of 60% on income between £100,000 and £125,140. Once your income reaches £125,140, your entire personal allowance is removed.
Who Typically Pays the 40% Tax Rate?
You may enter the 40% bracket if you are:
A salaried employee earning over £50,270
A business owner, freelancer, or contractor with high profits
Receiving income from rental properties or dividends
Earning large bonuses or commissions
Drawing income from pensions or multiple sources
Even if your base salary is below the threshold, other income sources could push you into the higher-rate band.
How to Legally Reduce 40% Tax Exposure
If you’re approaching or already in the 40% tax band, there are several legal ways to reduce the amount of income taxed at that rate:
Contribute to a pension: Payments into your pension reduce your taxable income.
Use Gift Aid donations: Charitable giving can extend your basic-rate band.
Claim allowable expenses: If you’re self-employed, ensure you deduct all legitimate business costs.
Tax-efficient investments: Use ISAs and other tax shelters.
Marriage Allowance: If one partner earns under the personal allowance, some of their unused allowance may be transferred.
These methods are all HMRC-approved and commonly used by higher earners to optimise their tax position.
Frequently Asked Questions
Q: Do I pay 40% tax on all my income if I earn over £50,271?
No. Only the portion of your taxable income above £50,270 is taxed at 40%. Everything below that is taxed at the appropriate lower rates.
Q: What’s the difference between taxable income and gross income?
Taxable income is your gross income minus allowances, deductions, and reliefs such as pension contributions or personal allowance.
Q: Does the 40% rate apply across the UK?
No. Scotland has a different income tax system. The figures above apply to England, Wales, and Northern Ireland.
Q: What happens if I earn £100,000 or more?
You begin to lose your personal allowance at a rate of £1 for every £2 above £100,000, which increases your effective tax rate and could push more of your income into the 40% and 45% bands.
Key Takeaways
The 40% tax rate is part of the UK’s progressive system and only applies to income within a defined range.
The 40% bracket applies only to income from £50,271 to £125,140 (2025/26).
Income below this is taxed at 0% or 20%—you won’t pay 40% on your whole salary.
It’s often misunderstood — very few people pay 40% on all of their income.
More earners are being pulled into this band due to inflation and frozen thresholds.
There are practical and legal strategies available to reduce higher-rate tax liability.
Understanding the mechanics of tax bands can help you better plan your finances and avoid overpaying.
Tax planning (pensions, allowances, expenses) can soften or avoid higher‑rate exposure.
Want Expert Advice?
If you're approaching the 40% tax band or already within it, it's often worth speaking to a qualified tax advisor or accountant. We can help you make smart use of allowances, pension planning, and other reliefs to reduce your liability and keep more of what you earn.