Tax Bracket For 40 - Higher Rate

Index

• Understanding the 40% Tax Bracket in the UK: What It Means and Who It Affects in 2025/26

• How to Avoid Overpaying in the 40% Tax Bracket: Practical Strategies for UK Taxpayers

• Smart Tax Planning for High Earners: Optimising and Navigating the 40% Tax Bracket in the UK

• Summary of the Most Important Points About the 40% Tax Bracket

• Frequently Asked Questions

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Understanding the 40% Tax Bracket in the UK: What It Means and Who It Affects in 2025/26

What is the 40% Tax Bracket in the UK?

In the UK tax system, the 40% tax bracket—officially called the Higher Rate of Income Tax—applies to taxable income between £50,271 and £125,140 for the 2025/26 tax year (6 April 2025 to 5 April 2026). If your income exceeds the standard Personal Allowance of £12,570, you'll move through the 20% Basic Rate and into this Higher Rate once your income exceeds £50,270.

🔗 Source: Income Tax rates and bands – GOV.UK

Breakdown of the UK Income Tax Bands (2025/26)

Income Band	Taxable Income Range	Tax Rate
Personal Allowance	£0 to £12,570	0%
Basic Rate	£12,571 to £50,270	20%
Higher Rate (Focus)	£50,271 to £125,140	40%
Additional Rate	Over £125,140	45%

Note: If your income exceeds £100,000, your Personal Allowance is gradually withdrawn—by £1 for every £2 earned above £100,000. It reaches zero at £125,140, effectively pushing more of your income into the 40% and 45% bands.

Breakdown of the UK Income Tax Bands (2025/26)

Who Typically Falls Into the 40% Tax Bracket?

The 40% tax bracket primarily affects:

• Mid- to high-earning employees

• Company directors

• Successful freelancers and consultants

• Landlords with significant rental income

• Entrepreneurs drawing dividends from limited companies

In 2025, roughly 5.4 million UK individuals fall into the Higher Rate bracket—up from 4.2 million in 2021—thanks to frozen thresholds under the UK government's fiscal drag policies.

Real-World Example: What 40% Tax Means in Practice

Let’s walk through a scenario featuring Alistair, a software consultant from Kent.

Scenario:

• Annual salary: £85,000

• Pension contributions: £5,000 (salary sacrifice)

• No other income sources

Taxable income = £85,000 - £5,000 (pension) = £80,000Income over Personal Allowance = £80,000 - £12,570 = £67,430

Here's how his tax breaks down:

Tax Band	Taxable Amount	Rate	Tax Due
Basic Rate	£37,700	20%	£7,540
Higher Rate	£29,730	40%	£11,892
Total Tax			£19,432

So, Alistair pays £19,432 in Income Tax, with £11,892 taxed at 40%.

Why More People Are Being Pulled Into the 40% Bracket

The UK government has frozen tax thresholds until 2028, while wages and inflation have risen. This phenomenon is called "fiscal drag", where more people pay more tax not because they’re richer, but because their nominal income has crept above tax thresholds.

Key impacts of this policy:

• More PAYE employees now pay 40%

• Reduction in effective Personal Allowance for those earning over £100k

• Net income erosion for middle-income professionals

Emergency Tax Codes: A Silent Trigger Into the 40% Band

Emergency tax codes like 1257L W1/M1 can cause HMRC to temporarily miscalculate your earnings, leading to overtaxation.

Let’s say Irene, a project manager in Liverpool, changed jobs mid-year and her employer used an emergency tax code. Her first payslip showed she paid 40% tax on nearly all her income. Why? Because emergency tax codes ignore cumulative earnings, assuming you earn that month’s pay every month.

Fix:

• Update your HMRC record via Check Your Income Tax

• Submit a P45 to your new employer

• If overtaxed, claim a refund via your personal tax account

How the 40% Band Affects Payroll Deductions

Under PAYE (Pay As You Earn), your employer deducts tax monthly. Once your year-to-date income exceeds £50,270, your next earnings get taxed at 40%. This might catch you off guard if you:

• Get a bonus

• Have multiple income sources

• Start a job mid-year and cross bands quickly

Tip: Use HMRC’s online tax checker or speak with payroll if your deductions spike suddenly.

Scottish vs Rest of UK: Tax Band Differences

If you live in Scotland, the tax bands are different. For the 2025/26 tax year:

Band	Tax Rate	Income Range
Starter Rate	19%	£12,571–£14,876
Basic Rate	20%	£14,877–£26,561
Intermediate	21%	£26,562–£43,662
Higher Rate	42%	£43,663–£75,000
Advanced Rate	45%	£75,001–£125,140
Top Rate	48%	Over £125,140

So, a Scottish taxpayer enters a higher-rate equivalent at a much lower income (£43,663 vs £50,271 in the rest of the UK), and pays slightly higher marginal rates.

🔗 Source: Scottish Income Tax – GOV.UK

Tax-Free Allowances That Can Keep You Below 40%

Some allowances may lower your taxable income, helping you stay under the Higher

Rate threshold:

1. Salary sacrifice pension schemes

2. Gift Aid donations

3. Marriage Allowance (if eligible)

4. Dividend Allowance (£500 for 2025/26)

5. Trading/Property allowances (£1,000 each)

Proper planning here can be the difference between being taxed at 20% vs 40% on marginal income.

Key Takeaways So Far

• You enter the 40% tax band at £50,271 taxable income in England, Wales, and Northern Ireland.

• The effective threshold for losing all Personal Allowance is £125,140, pushing more income into higher bands.

• Emergency codes, bonuses, and multiple income streams can quickly escalate your tax liability.

• Regional differences (especially in Scotland) matter significantly.

• Using reliefs and allowances can keep your income in a lower band.

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How to Avoid Overpaying in the 40% Tax Bracket: Practical Strategies for UK Taxpayers

Mastering Your Tax Code to Stay Clear of 40% Traps

Your tax code plays a pivotal role in whether you’re accurately taxed under PAYE. If it’s incorrect—even by one digit—you could be unfairly bumped into the 40% bracket.

Common Triggers for Incorrect Tax Codes

• Starting a new job without a P45

• Multiple income sources (e.g., pension + part-time job)

• Benefits in kind (e.g., company car, private medical cover)

• Lump sum bonuses or share schemes

Let’s say Gareth, a sales manager from Bristol, switches jobs mid-year but his new employer hasn’t updated HMRC with his previous income. His new code is BR (Basic Rate), meaning all his income is taxed at 20%, with no Personal Allowance applied. As the year progresses, Gareth’s total earnings exceed £50,270—but because of code errors, he’s now double-taxed on earlier underpayments.

What to Do

• Check and correct your tax code using HMRC's income tax checker

• Submit forms P45 (when changing jobs) or P11D (if you receive benefits)

• If taxed incorrectly, request a P800 tax calculation and claim a refund

Income Timing: A Simple Yet Overlooked Strategy

When you receive income can be just as important as how much you earn.

Bonus or Dividend Deferral

Let’s say Harriet, a contractor earning £49,000, is due a £3,000 bonus in March 2026. Receiving it before 5 April will tip her into the 40% band. But if she defers it to 6 April 2026, it’s taxed in the next year—potentially at 20% if her income doesn't rise.

This strategy also applies to:

• Dividend payments from your limited company

• Self-employment income (e.g., invoice timing)

• Director’s fees and profit distributions

Warning: HMRC monitors artificial income shifting, so timing should align with business justification.

Salary Sacrifice: Legally Reduce Taxable Pay

Salary sacrifice allows employees to swap a portion of their gross salary for non-cash benefits like pensions, cycle-to-work, or childcare vouchers.

Let’s return to Alistair, who earns £85,000. By increasing his pension contributions from £5,000 to £10,000 through salary sacrifice:

• His taxable pay drops to £75,000

• He saves £2,000 in income tax (due to reduced 40% exposure)

• His NI contributions also reduce

Additional Benefits:

• Employers often pass on their NI savings too

• Helps retain Personal Allowance for incomes near £100k

Marriage Allowance and Personal Transfers

If you’re married or in a civil partnership, you might be eligible for Marriage Allowance, letting the lower-earning partner transfer up to 10% of their Personal Allowance (£1,260) to the higher earner.

Conditions:

• One partner earns less than £12,570

• The other is in the Basic Rate band only

So if Euan earns £48,000 and his spouse Moira earns £6,000 from part-time tutoring, they could save £252 in tax annually—and still stay under the 40% threshold.

Pro tip: Claim retrospectively for up to four previous tax years, potentially yielding a £1,000+ refund.

Tracking Refunds and HMRC Errors

Over 1.6 million taxpayers overpaid via PAYE in 2023-24, largely due to:

• Incorrect codes

• Emergency tax post-job changes

• Changing income patterns (bonuses, commissions)

Real-Life Case: Refund from Emergency Tax

Winifred, an HR consultant from Leeds, took on a short-term contract between jobs. Her employer applied an emergency tax code (W1/M1), deducting 40% tax from her £6,000 monthly contract. After switching to full-time employment, she noticed disproportionately high deductions.

She used the HMRC personal tax account to file a correction. Within six weeks, she received a £1,426 refund, plus interest.

Self-Assessment & Overpayment Corrections

If you're self-employed or have income outside of PAYE, you must file a Self-Assessment return. It's essential for:

• Reclaiming overpaid tax (especially with multiple income sources)

• Applying tax relief (e.g., for home office costs, business mileage)

• Declaring dividends, rental income, and pension contributions

Tip for PAYE Workers with Side Hustles

If you also earn from Airbnb, tutoring, or Etsy—don’t assume HMRC gets it right by default. Declare it via Self Assessment to avoid penalties and optimise tax relief.

Maximise Tax-Free Allowances Before Entering 40% Band

Allowance	Amount (2025/26)	Eligibility
Personal Allowance	£12,570	All (tapered if over £100k)
Dividend Allowance	£500	Shareholders
Trading Allowance	£1,000	Side-hustlers
Property Allowance	£1,000	Landlords (if not using Rent-a-Room)
Blind Person’s Allowance	£3,070	Eligible individuals
Marriage Allowance	£1,260 transfer (worth £252)	Married couples

Use these strategically. For instance, splitting rental income between spouses can keep both under the 40% band, especially if one partner is non-working.

Maximise Tax-Free Allowances Before Entering 40% Band

Limited Company Tactics for Business Owners

If you run your own company, how you extract profit matters.

Director’s Salary + Dividend Strategy

Scenario: Dionne, a self-employed graphic designer earning £60,000 from her Ltd company.

She can:

• Pay herself a salary of £12,570 (tax-free under Personal Allowance)

• Take dividends up to £37,700 taxed at 8.75%

• Avoid most of the 40% band entirely

If Dionne takes more, she’ll enter the Higher Rate dividend tax at 33.75%, but that’s still lower than 40% income tax.

Important: Dividend allowance has dropped from £1,000 to £500 in 2025—budget accordingly.

Checkpoint: Have You Crossed Into the 40% Band?

Ask yourself:

• Has your gross annual income exceeded £50,270?

• Have you received any bonuses, freelance income, or dividends recently?

• Did your employer use an emergency or cumulative tax code?

• Are you nearing £100k and losing your Personal Allowance?

If so, it’s time to:

1. Log into your HMRC Personal Tax Account

2. Review and update employment details

3. Recalculate your taxable income including benefits, pensions, or side gigs

4. Consider tactical pension contributions or charitable donations

This section has unpacked multiple practical strategies for dealing with the 40% tax bracket—from proactive planning to after-the-fact fixes. Want to keep going? In the final section, we’ll explore:

• How business owners and landlords can restructure income to minimise tax

• Navigating HMRC disputes and audits

• Common myths about the 40% tax rate

• Advanced examples of high-income tax relief and optimisations

Get Professional Help With Your Taxes

Smart Tax Planning for High Earners: Optimising and Navigating the 40% Tax Bracket in the UK

The £100,000 Trap: Losing Your Personal Allowance

One of the most punitive thresholds in UK tax law is £100,000 in adjusted net income. At this point, your Personal Allowance of £12,570 begins to taper.

How the Taper Works

For every £2 earned over £100,000, you lose £1 of your Personal Allowance. This means:

• At £125,140, your allowance is completely gone.

• The effective marginal tax rate on income between £100,001 and £125,140 is a staggering 60% (due to the loss of tax-free income).

Example: Subtle, But Painful

Stuart, a solicitor in Nottingham, earns £110,000 and receives a £5,000 bonus. That bonus doesn’t just push him further into the 40% band—it also reduces his Personal Allowance by £2,500, causing more of his income to be taxed than he expected.

Strategy to Avoid This Trap

• Make pension contributions or Gift Aid donations to reduce adjusted net income.

• Shift income between spouses or defer to next year if close to the limit.

• Consider charitable donations, which reduce adjusted income while providing real-world impact.

High-Income Child Benefit Charge (HICBC)

If you or your partner earn over £50,000, and one of you claims Child Benefit, beware: the HICBC could claw it back.

• At £50,001 to £60,000: the charge is tapered.

• Over £60,000: you repay all the Child Benefit through tax.

Tip

You can opt out of receiving Child Benefit payments to avoid repayment—but still get National Insurance credits to protect your State Pension entitlement.

Landlords in the 40% Band: The Mortgage Interest Issue

As a landlord in the 40% tax bracket, you’ll no longer receive relief on mortgage interest at your marginal rate. Since April 2020, mortgage interest relief has been limited to a 20% tax credit, meaning:

• You still declare full rental income

• Mortgage interest can’t reduce your taxable income

Example

Marjorie, a landlord from Bournemouth, earns £58,000 and receives £12,000 in rental income. Her mortgage interest is £7,000.

Before 2020: She’d offset the full £7,000, reducing her taxable rental profit to £5,000.

Now: She reports £12,000 rental income and gets a £1,400 tax credit (20% of £7,000), while paying 40% tax on the full £12,000.

Solutions

• Transfer property ownership to a lower-earning spouse (requires legal/financial advice).

• Incorporate: move property into a limited company, where mortgage interest is fully deductible.

• Offset rental losses from prior years if applicable.

Income Splitting: Legal But Underused

If you’re married or in a civil partnership, transferring income-yielding assets—like shares, property, or savings—to your lower-earning partner can help.

Conditions for Effectiveness:

• Transfers must be genuine and unconditional.

• Best used where one partner is in the Basic Rate or non-taxpayer band.

• Applies to rental income, dividends, and savings interest.

Example:

Declan earns £95,000. His wife Freya has no earned income. Declan transfers a rental property yielding £9,000 annually. Freya is taxed at 20% or less, saving Declan over £1,800 per year in higher rate tax.

Company Directors: When and Why to Pay Dividends

Dividends are a popular way to reduce tax liability for business owners:

• 2025/26 Dividend Allowance: £500

• Basic Rate (up to £50,270): 8.75%

• Higher Rate (to £125,140): 33.75%

• Additional Rate (over £125,140): 39.35%

Smart Dividend Planning

• Pay yourself a salary of £12,570 to use your full Personal Allowance.

• Extract the rest via dividends—up to £50,270 in total taxable income to stay within the 20% income tax + 8.75% dividend rate.

• Use directors' loans or defer dividends to a low-income tax year if you're expecting a dip.

Watch for Pitfalls

• Don't ignore National Insurance thresholds if taking a very low salary.

• Dividends must be paid from post-tax company profits.

Common Myths About the 40% Tax Band

Let’s clear up a few common misconceptions that trip up UK taxpayers:

“If I enter the 40% band, all my income is taxed at 40%.”

False. Only the income above £50,270 is taxed at 40%. Everything below it follows the earlier bands.

“Having two jobs automatically pushes me into the 40% band.”

Not necessarily. HMRC combines your earnings. If total taxable income exceeds £50,270, only the income above that threshold is taxed at the higher rate.

“I don’t need to worry—my employer handles all my taxes.”

Not entirely. While PAYE is designed for automation, mistakes in coding, benefits, or bonuses can lead to over- or under-taxation. It’s your responsibility to monitor and correct it.

Preparing for an HMRC Review or Audit

HMRC is increasingly using AI and digital systems to detect anomalies. A mismatch between reported income, property ownership, or benefits could trigger a compliance check.

What Might Trigger an Investigation:

• Frequent corrections to your tax return

• High-income with underreported dividends

• Large Gift Aid donations relative to income

• Rental income not declared despite evidence (e.g., Airbnb listings)

Protect Yourself:

• Keep clear digital records of all income sources

• Use the HMRC Personal Tax Account regularly

• File accurate Self Assessments on time

• Hire a tax adviser if your situation becomes complex

Advanced Strategies for High-Income Tax Relief

If your income exceeds £125,140, and you’re paying 45% income tax, every relief becomes more valuable.

Use These Tools:

• Enterprise Investment Scheme (EIS): 30% income tax relief on investments up to £1 million

• Seed Enterprise Investment Scheme (SEIS): 50% tax relief on smaller startups

• Venture Capital Trusts (VCTs): 30% upfront relief plus tax-free dividends

• Pension top-ups: Especially if unused allowance from previous 3 years

These strategies are often used by high-net-worth individuals to legally reduce tax, support UK innovation, and grow wealth tax-efficiently.

Final Real-World Example: Complex Scenario Breakdown

Branwen, a London-based architect, earns £128,000 from her private practice. She also receives £8,000 in dividends from shares and £9,000 in Airbnb income.

Let’s analyse her position:

Income Source	Amount	Tax Treatment
Salary	£128,000	All above £125,140 taxed at 45%
Dividend income	£8,000	£500 allowance + 39.35% on remainder
Airbnb (property)	£9,000	£1,000 allowance, taxed at 45%

Total income: £145,000Total tax: £40,000+, including loss of Personal Allowance.

Mitigation strategies:

• Gift Aid donation of £5,000 to reduce adjusted income

• Max out pension contributions using carry-forward

• Transfer Airbnb ownership to her partner (Basic Rate taxpayer)

• Restructure as Ltd Co. to treat Airbnb as a furnished holiday let (FHL) for better tax treatment

Wrap-Up

Navigating the 40% tax bracket in the UK doesn’t mean you’re doomed to lose a large chunk of your earnings. With proactive planning, smart income structuring, and a firm understanding of how HMRC applies rules, it’s absolutely possible to:

• Avoid creeping into the higher rate unintentionally

• Fix overpayments and coding errors fast

• Take advantage of underused allowances

• Optimise your financial position legally

Use tools like Check your Income Tax and your HMRC personal tax account to stay in control, and never assume that the default deductions are correct.

Get Professional Help With Your Taxes

Summary of All the Most Important Points Mentioned In the Above Article

• In the 2025/26 tax year, the UK 40% Higher Rate Income Tax applies to earnings between £50,271 and £125,140, with all income above £125,140 taxed at 45%.

• Your Personal Allowance of £12,570 is reduced by £1 for every £2 of income above £100,000, disappearing entirely at £125,140—creating an effective 60% tax zone.

• Emergency tax codes, job changes, and unreported income can trigger higher-than-necessary tax under PAYE, so regularly checking your tax code is crucial.

• Strategic timing of bonuses or dividends—especially near year-end—can help you stay below the Higher Rate threshold or defer tax to a lower-income year.

• Salary sacrifice for pensions and using tax-free allowances like the Marriage Allowance and trading/property allowances can reduce your taxable income.

• Self-employed individuals and side-hustlers should file accurate Self Assessment returns to claim reliefs, avoid penalties, and ensure overpaid tax is refunded.

• Landlords in the 40% band can no longer deduct mortgage interest fully and should explore incorporation or income splitting with spouses to stay tax-efficient.

• Company directors can optimise tax by drawing a low salary and extracting profits via dividends, staying mindful of reduced dividend allowances and NI thresholds.

• High-income earners can reduce taxable income and reclaim allowances through Gift Aid donations, pension contributions, and advanced reliefs like EIS and VCTs.

• HMRC uses digital tools to spot mismatches, so keeping clear records, staying under key thresholds, and using your HMRC personal tax account regularly is essential.

FAQs

Q1. How much can you earn before paying 40% tax in the UK in 2025?

A: You start paying 40% tax on income above £50,270, assuming you receive the full standard Personal Allowance of £12,570.

Q2. Do you pay 40% tax on all your income once you enter the higher rate band?

A: No, only the portion of your income that exceeds £50,270 is taxed at 40%; the rest is taxed according to the lower bands.

Q3. Can you avoid entering the 40% tax bracket by increasing pension contributions?

A: Yes, increasing your pension contributions through salary sacrifice can reduce your taxable income and help keep you below the higher rate threshold.

Q4. How does the 40% tax bracket affect child benefit entitlement in 2025?

A: If your income exceeds £50,000, you may be subject to the High Income Child Benefit Charge, which can reduce or eliminate your benefit entitlement.

Q5. Does the 40% tax band apply the same way in Scotland as in England?

A: No, Scotland has different tax bands and rates, with higher-rate tax starting at £43,663 and at a slightly higher rate of 42%.

Q6. Can you check if you’ve overpaid tax after being in the 40% bracket?A: Yes, you can use HMRC’s online tools or your personal tax account to check for overpayments and request a refund if applicable.

Q7. What happens if your income temporarily crosses into the 40% band?

A: Even temporary income increases—like bonuses—can be taxed at 40% for the portion above £50,270, though adjustments may be made if your annual income stays lower.

Q8. Are bonuses taxed at 40% automatically in the UK?

A: Not automatically; they are added to your total income and taxed based on which band they fall into when combined with your regular income.

Q9. Does having multiple jobs increase your chances of being taxed at 40%?

A: Yes, if your total combined taxable income across all jobs exceeds £50,270, the higher rate of 40% will apply to the excess.

Q10. Can you offset rental losses against income taxed at 40%?

A: Yes, if you have allowable rental losses from previous years, they can be carried forward and used to offset future rental profits.

Q11. What is the effective tax rate between £100,000 and £125,140?

A: The effective tax rate in this band is approximately 60% due to the tapering of the Personal Allowance.

Q12. Can dividends push you into the 40% income tax bracket?

A: Yes, dividends are added to your total income and can push you into the higher rate band, with dividends above the allowance taxed at 33.75% if you're a higher-rate taxpayer.

Q13. Does student loan repayment increase when you enter the 40% tax band?

A: Yes, repayments increase proportionally with your income, but the repayment rate remains fixed based on your plan type, not your tax band.

Q14. Is the 40% tax bracket applied before or after National Insurance is deducted?

A: The 40% tax applies to your taxable income, which is calculated after subtracting allowable deductions like pension contributions, but not National Insurance.

Q15. Can Gift Aid donations bring you below the 40% threshold?

A: Yes, qualifying Gift Aid donations extend your basic rate band and can reduce your income liable to 40% tax.

Q16. How can company car benefits affect entry into the 40% tax band?

A: Company car benefits are added to your income as a benefit-in-kind, potentially pushing your total taxable income into the 40% range.

Q17. What tax code is usually used for people in the 40% bracket?

A: Taxpayers in the 40% band often have standard codes like 1257L, but may also have adjusted codes if they receive benefits or have multiple incomes.

Q18. Can business owners split income to avoid the 40% band?

A: Yes, income splitting through dividends with a lower-earning spouse or transferring assets can help reduce exposure to the 40% rate.

Q19. What’s the difference between gross and taxable income when calculating 40% tax?

A: Gross income is your total earnings, while taxable income is what's left after deducting the Personal Allowance and allowable reliefs.

Q20. Are pensioners affected by the 40% tax band in the same way?

A: Yes, if a pensioner's total taxable income exceeds £50,270, they will pay 40% tax on the amount above that threshold.

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