You've had a pay rise, taken on more clients, or landed a bonus, and someone's told you you're now a "40% taxpayer". The worry is obvious: are you about to lose 40% of everything you earn?
You're not. The 40% higher rate only applies to the slice of your income above a set threshold, not to your whole salary. For 2025/26 that threshold is £50,270.
This guide explains exactly when you start paying 40%, how much tax you'll really pay on a typical higher rate salary, and the legitimate ways to keep more of what you earn. It's written for employees, the self-employed and company directors in England, Wales and Northern Ireland.
What are the UK income tax rates for 2025/26?
The UK uses a progressive tax system. That means your income is split into bands, and each band has its own rate. You don't pay one flat rate on everything.
Think of it like filling buckets. The first bucket (your personal allowance) isn't taxed at all. The next bucket is taxed at the basic rate, the one after that at the higher rate, and so on. Only the money that lands in the 40% bucket is taxed at 40%.
For 2025/26 (6 April 2025 to 5 April 2026), these are the bands for England, Wales and Northern Ireland.
| Tax band | Taxable income | Rate |
|---|---|---|
| Personal allowance | £0 to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | over £125,140 | 45% |
Scotland sets its own income tax rates and bands, which differ from the rest of the UK. If you're a Scottish taxpayer, check the Scottish income tax rates on gov.uk, because the figures in this guide won't apply to you.
What is the personal allowance?
The personal allowance is the amount you can earn each year before paying any income tax. For 2025/26 it's £12,570.
There's a catch for high earners. If your income goes over £100,000, your personal allowance is cut by £1 for every £2 above that figure. By £125,140 it's gone entirely. That tapering creates an effective 60% tax rate on income between £100,000 and £125,140, which is why accountants often call it a "tax trap".
What is the basic rate?
The basic rate is 20%, and it covers taxable income from £12,571 to £50,270. This is where most UK taxpayers sit. In this band you keep 80p of every pound, before National Insurance and any other deductions.
What is the 40% tax bracket, and when do you enter it?
The 40% bracket, properly called the higher rate, is the third tier of UK income tax. You enter it once your total taxable income for the year goes above £50,270.
For 2025/26 the higher rate band runs from £50,271 to £125,140. Income in that range is taxed at 40%.
Reaching it usually means your career or business is doing well. It's also the point where a bit of planning starts to pay off, because the tax on each extra pound steps up.
Above £125,140 you move into the additional rate band and pay 45% on income over that figure. By then your personal allowance has been tapered away completely.
How much do you have to earn to pay 40% tax?
Your total taxable income needs to top £50,270 for 2025/26 before any of it is taxed at 40%.
"Taxable income" matters here. It's your total income minus the allowances, deductions and reliefs you're entitled to claim, not your headline salary or turnover.
For an employee, taxable income is usually close to your gross salary. For someone self-employed, it's your profit after allowable business expenses, which can be a very different number.
Illustrative example: same income, different tax Sam is employed on a £55,000 salary. With no other deductions, almost all of that £55,000 is taxable, so part of it falls into the 40% band. Alex is self-employed and bills £55,000, but has £15,000 of genuine allowable expenses. Alex's taxable profit is £40,000, which sits entirely within the basic rate band. Same money in, very different tax position.
This is one reason your business structure matters. The self-employed and company directors often have more room to manage their taxable income through legitimate deductions and how they draw profit. Our corporation tax services and tax advisory team can help you work out which structure fits.
Do you pay 40% tax on all your earnings?
No. This is the single most common misconception about UK tax, so it's worth nailing down.
You only pay 40% on the slice of income that lands in the higher rate band. Everything below that is still taxed at the lower rates for each band.
Illustrative example: tax on a £60,000 salary
Here's how income tax works out on a £60,000 salary in 2025/26.
| Income band | Amount | Rate | Tax |
|---|---|---|---|
| Personal allowance | £12,570 | 0% | £0 |
| Basic rate | £37,700 | 20% | £7,540 |
| Higher rate | £9,730 | 40% | £3,892 |
| Total | £60,000 | £11,432 |
Even though you're "in the 40% bracket", you only pay 40% on £9,730 of your income. The total income tax of £11,432 works out at an effective rate of about 19% across the whole £60,000.
You'll also pay Class 1 National Insurance as an employee. For 2025/26 that's 8% on earnings between £12,570 and £50,270, then 2% above £50,270. On £60,000 that's roughly £3,211 (£37,700 × 8% plus £9,730 × 2%).
Putting both together on a £60,000 salary:
- Income tax: £11,432
- Employee National Insurance: about £3,211
- Take-home pay: about £45,357 a year, or roughly £3,780 a month
Want the figures for your exact salary? Try our take-home pay calculator or income tax calculator.
What is your marginal tax rate, and why does it matter?
Your marginal tax rate is the rate you pay on the next pound you earn. It's not the same as your effective rate, which is the average across all your income.
Knowing your marginal rate helps you make better calls on things like overtime, a bonus, pension contributions, or whether a salary sacrifice scheme is worth it.
Illustrative example: an extra £1,000 for a higher rate earner
If you earn £60,000, you're a higher rate taxpayer, so your marginal rate is 40% plus 2% National Insurance. On an extra £1,000 of bonus or overtime:
- Income tax at 40%: £400
- National Insurance at 2%: £20
- You keep: £580
That's not a reason to turn down extra work. It just means it's worth understanding the maths, and using reliefs like pension contributions where they help.
Why are more people being pulled into the 40% bracket?
Because the thresholds aren't moving. The personal allowance and the higher rate threshold have been frozen since April 2021, and at Budget 2025 the government confirmed they'll stay frozen until 5 April 2031.
For 2025/26 that means:
- Personal allowance: £12,570 (frozen)
- Higher rate threshold: £50,270 (frozen)
- Additional rate threshold: £125,140 (frozen)
As wages rise with inflation, frozen thresholds quietly pull more people into higher bands without any real increase in spending power. That's "fiscal drag".
Illustrative example: fiscal drag in action A pay rise from £49,000 to £51,000 nudges you just over the £50,270 threshold. Roughly £730 of that rise now sits in the 40% band. You're no richer in real terms, but a slice of your income is taxed at the higher rate for the first time.
What does the 40% bracket do to your savings allowance?
Becoming a higher rate taxpayer halves your personal savings allowance, from £1,000 to £500 a year.
The personal savings allowance is the amount of interest you can earn on savings before any tax is due. It depends on your tax band.
| Tax band | Personal savings allowance |
|---|---|
| Basic rate (20%) | £1,000 |
| Higher rate (40%) | £500 |
| Additional rate (45%) | £0 |
If your interest goes over your allowance, the excess is taxed at your marginal rate.
Illustrative example: savings interest for a higher rate earner You're a higher rate taxpayer and earn £800 of savings interest in 2025/26. The first £500 is covered by your allowance. The remaining £300 is taxed at 40%, so you owe £120. Your bank won't deduct this for you, so it's usually handled through your tax code or a Self Assessment return.
One simple way to shelter savings is an Individual Savings Account (ISA). You can pay in up to £20,000 a year across your ISAs, and the interest, dividends and gains are all tax-free.
How can you reduce your tax bill in the higher rate band?
Being a higher rate taxpayer is a good problem to have, but it does make tax efficiency worth your time. Here are legitimate options, not loopholes.
Claim the allowances and reliefs you're entitled to
Marriage Allowance. If you're married or in a civil partnership and one of you earns below the personal allowance, the lower earner can transfer £1,260 of their allowance to the other. It reduces the recipient's tax by up to £252 a year. Note that this is for basic rate couples, so it's most relevant before one of you tips into the higher rate.
Capital gains annual exempt amount. You can make gains of up to £3,000 in 2025/26 before any Capital Gains Tax is due. Timing when you sell assets can help you use this allowance each year. Our capital gains calculator gives you a quick estimate.
Allowable business expenses. If you're self-employed, claiming every genuine business cost reduces your taxable profit. Typical examples include a proportion of home office costs, business travel, professional fees and subscriptions, and equipment or software.
Use pension contributions
Pension contributions are one of the strongest tools for higher rate taxpayers, because you get tax relief at your marginal rate.
For a higher rate taxpayer, a £100 pension contribution effectively costs you £60: £20 of relief is added at source and you claim a further £20 through your tax return or tax code. The annual allowance for most people is £60,000 for 2025/26 (or your total earnings if lower).
Illustrative example: a £10,000 pension contribution You earn £60,000 and pay £10,000 into your pension. That reduces the income exposed to higher rate tax, saving up to £4,000 in tax (40% of £10,000). If your income had been over £100,000, contributing can also help restore some of the tapered personal allowance.
Get the right business structure
If you're self-employed, how you trade affects your tax. A sole trader pays income tax and National Insurance on all profit. A limited company director can usually take a mix of salary and dividends, which can be more efficient, but it brings extra factors like Corporation Tax, the dividend allowance and more admin.
There's no one-size answer, and the right choice depends on your profit level, plans and personal circumstances. Talk to us before you change anything, rather than after. For a sense of dividend tax, our dividend tax calculator is a useful starting point.
Want to keep more of your higher rate income? Book a free 20-minute call with a Zmartly accountant. We'll look at your salary, profits and structure, and show you the legitimate ways to cut your tax bill. Get in touch with Zmartly.
FAQs
When do you start paying 40% tax in 2025/26?
You start paying 40% tax once your taxable income goes above £50,270 for 2025/26 in England, Wales and Northern Ireland. You only pay 40% on the income above that threshold, not on your whole salary. Scotland uses different rates.
How much tax do you pay on a £50,000 salary?
On a £50,000 salary in 2025/26 you'll pay about £7,486 in income tax: nothing on the first £12,570, then 20% on the remaining £37,430. As an employee you'll also pay around £2,994 in National Insurance, leaving take-home pay of roughly £39,520 a year, or about £3,293 a month.
What is the basic rate of income tax in the UK?
The basic rate is 20%. For 2025/26 it applies to taxable income between £12,571 and £50,270 in England, Wales and Northern Ireland. It's the rate most UK taxpayers pay on the bulk of their earnings.
What happens to your tax if you earn over £100,000?
Once your income passes £100,000, your personal allowance is reduced by £1 for every £2 above that figure, and it disappears completely at £125,140. This creates an effective tax rate of about 60% on income between £100,000 and £125,140.
Will the personal allowance increase soon?
No. The personal allowance is frozen at £12,570 and, following Budget 2025, the freeze on the personal allowance and the income tax thresholds runs until 5 April 2031. Any future change would normally be announced in a Budget.
How can you calculate your UK salary tax?
Apply each tax rate to the relevant slice of your income, then add employee National Insurance to see your true take-home pay. The quickest way is to use a calculator: try Zmartly's take-home pay calculator or HMRC's official tools.
