What is the 40% tax bracket?

If you've recently received a pay rise, bonus or promotion, you may have discovered that you're now in the 40% tax bracket. 

For many people, that can sound alarming. One of the biggest tax myths in the UK is that once you cross into the higher-rate tax band, all of your income suddenly gets taxed at 40%. 

Thankfully, that's not how the system works. 

The UK uses a progressive income tax system. That means different portions of your income are taxed at different rates. Moving into the 40% tax bracket doesn't mean losing 40% of your salary. It simply means part of your earnings will now be taxed at the higher rate. 

In this guide, we'll explain exactly how the 40% tax bracket works, who pays it, how the 60% tax trap affects higher earners and the legitimate ways you may be able to reduce your tax bill. 

RIFT Roundup

• The 40% tax bracket starts at £50,271 in England, Wales and Northern Ireland.
• Only the income above the higher-rate threshold is taxed at 40%.
• Scotland has different income tax bands and rates.
• Earnings between £100,000 and £125,140 can face an effective 60% tax rate because of the Personal Allowance taper.
• Pension contributions, Gift Aid and employment expenses may help reduce your taxable income.
• Higher-rate taxpayers are among the groups most likely to overpay tax through incorrect tax codes or missed reliefs. 

What is the 40% tax bracket in the UK?

The 40% tax bracket is the UK's higher-rate Income Tax band. 

For the 2025/26 tax year, higher-rate tax applies to taxable income between £50,271 and £125,140 in England, Wales and Northern Ireland.

Our current income tax bands are:

Tax Band	Taxable Income	Rate
Personal Allowance	Up 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%

Many people assume that crossing the £50,271 threshold means their entire income is taxed at 40%. 

It doesn't. 

Only the portion of income above the threshold is taxed at the higher rate. 

2026/27 Personal Allowance

What about Scotland?

Scottish taxpayers have different income tax bands. 

For 2025/26, the Scottish Higher Rate begins at £43,663 and is charged at 42%. Additional Scottish bands apply for higher earners. This means someone earning the same salary in Scotland may pay more Income Tax than someone living elsewhere in the UK. 

How does the 40% tax bracket actually work?

The easiest way to understand higher-rate tax is to think of your income as being divided into slices. 

Each slice is taxed separately. 

Example: £55,000 salary 

If you earn £55,000:

• First £12,570 = tax-free Personal Allowance
• Next £37,700 = taxed at 20%
• Final £4,730 = taxed at 40% 

You do not pay 40% tax on all £55,000. 

Only £4,730 falls into the higher-rate band. 

Example: £65,000 salary 

If you earn £65,000: 

• First £12,570 = tax-free
• Next £37,700 = taxed at 20%
• Remaining £14,730 = taxed at 40% 

Again, only part of your income is taxed at the higher rate. 

This is why a pay rise will always leave you better off overall.

Who pays the 40% tax rate?

You don't need to be extremely wealthy to become a higher-rate taxpayer. 

Thanks to frozen tax thresholds and rising wages, millions more people now fall into the 40% tax bracket than they did a few years ago.  

Common higher-rate taxpayers include: 

• Senior teachers
• Police inspectors
• Engineers
• IT professionals
• Senior NHS staff
• Construction managers
• Armed Forces officers
• Business owners
• Contractors 

You may also find yourself in the higher-rate band if: 

• You receive a large bonus
• You earn commission
• You have a second job
• You receive rental income
• You operate a side business
• You have investment income 

What income counts towards the 40% tax bracket?

HMRC looks at your total taxable income, not just your salary. 

Income that can contribute towards the higher-rate threshold includes: 

• Employment income
• Bonuses and commission
• Rental income
• Self-employed income
• Some investment income
• Certain employment benefits
• Pension income
• Interest and dividends above applicable allowances 

This is why people with multiple income streams can sometimes drift into higher-rate tax without realising it. 

The 60% tax trap explained

One of the most misunderstood parts of the UK tax system affects people earning between £100,000 and £125,140. 

Once your adjusted net income exceeds £100,000, your Personal Allowance begins to reduce. 

For every £2 you earn above £100,000, you lose £1 of Personal Allowance. By the time your income reaches £125,140, your allowance disappears entirely.  

This creates an effective marginal tax rate of 60%. 

Example 

Imagine your salary increases from £100,000 to £101,000. 

You pay: 

• 40% higher-rate tax on the extra income
• Additional tax because part of your Personal Allowance is removed 

The combined effect means £1,000 of additional earnings can create approximately £600 of extra tax. 

It's one of the most important tax planning areas for higher earners. 

For a deeper dive, see: How Earning Over £100k Affects Your Personal Allowance 

Hidden costs of becoming a higher-rate taxpayer

Moving into the 40% tax bracket can affect more than just your Income Tax.

High Income Child Benefit Charge 

If you or your partner claim Child Benefit and one of you earns over £60,000, you may have to repay some or all of the benefit through the High Income Child Benefit Charge. 

Reduced savings allowance 

Basic-rate taxpayers can earn up to £1,000 in savings interest tax-free. 

Higher-rate taxpayers only receive a £500 Personal Savings Allowance. 

Student loan deductions 

If you're repaying a student loan, your effective deductions may be significantly higher than your headline tax rate. 

Loss of Personal Allowance 

As we've seen, earnings above £100,000 can trigger the Personal Allowance taper. 

How can you reduce your 40% tax bill?

Paying higher-rate tax doesn't necessarily mean you're paying more tax than you need to. 

Several legitimate tax reliefs and allowances may help reduce your taxable income. 

Pension contributions 

Pension contributions are one of the most effective tax-planning tools available to higher-rate taxpayers. 

Benefits include: 

• Higher-rate tax relief
• Potential reduction of adjusted net income
• Preservation of Personal Allowance
• Retirement savings growth 

For many people, pension contributions are the simplest way to avoid the 60% tax trap. 

Gift Aid donations 

Gift Aid donations can extend your basic-rate tax band and potentially reduce higher-rate tax exposure. 

Marriage Allowance 

If you're married or in a civil partnership and one partner earns below the Personal Allowance threshold, you may be able to benefit from Marriage Allowance. 

Marriage Allowance Explained

Claiming work expenses 

Many higher-rate taxpayers fail to claim tax relief on employment expenses such as: 

• Professional subscriptions
• Union fees
• Uniform maintenance
• Specialist tools
• Work travel
• Mileage 

Unclaimed expenses can lead to years of unnecessary overpayments. 

Common 40% tax bracket mistakes

Assuming a pay rise will leave you worse off 

This is one of the most common tax myths. 

Although part of your income may be taxed at a higher rate, you'll always take home more money overall. 

Not checking your tax code 

An incorrect tax code can result in significant overpayment. 

Missing pension opportunities 

Many higher earners overlook the value of pension tax relief. 

Ignoring the £100k threshold 

The Personal Allowance taper can be surprisingly expensive. 

Forgetting to claim expenses 

Thousands of people pay more tax than necessary because they never claim available reliefs. 

Emergency tax and higher-rate taxpayers

Higher earners are particularly vulnerable to emergency tax. 

This often happens after: 

• Starting a new job
• Receiving a bonus
• Changing employment
• Missing a P45
• Having multiple jobs 

Emergency tax codes can result in substantial overpayments because HMRC temporarily assumes you'll continue earning the same amount throughout the year. 

Common emergency tax codes include: 

• 1257L M1
• 1257L W1
• BR
• D0
• D1 

If you've paid emergency tax, you may be due a refund.

Why higher-rate taxpayers often overpay tax 

At RIFT, we regularly see higher-rate taxpayers overpaying because of: 

• Incorrect tax codes
• Unclaimed work expenses
• Multiple jobs
• Emergency tax
• Bonuses taxed incorrectly
• Pension contribution errors Unclaimed reliefs 

The more complex your income becomes, the greater the chance that something has been missed. 

Could HMRC owe you money? 

Many higher-rate taxpayers assume their tax affairs are correct because everything is handled through PAYE. 

Unfortunately, that isn't always the case. 

If you've: 

• Changed jobs
• Received bonuses
• Paid professional fees
• Purchased tools or equipment for work
• Travelled for work
• Been placed on an emergency tax code 

there's a possibility you've paid more tax than necessary. 

Using a tax refund calculator can help identify whether you may be owed money back from HMRC.  

Sources

• https://www.theguardian.com/uk-news/ng-interactive/2025/nov/26/how-does-freezing-tax-thresholds-affect-your-own-tax-bill?