What is the 40% Tax Bracket?
In the UK, the 40% tax bracket is officially called the Higher Rate band. When people hear “40% tax bracket,” they often panic. It sounds like nearly half your income disappears the moment you hit a certain level. But that’s not how it works and if you’re earning enough to fall into this bracket, understanding how it actually functions can save you stress and potentially money. Let’s break it down, simply and properly. How the UK Tax System Works Understanding where the 40% tax rate sits in the bigger picture helps make sense of your full income tax liability. Here’s how the UK tax bands look for the 2025 tax year. income tax liability. Here’s how the UK tax bands look for the 2025 tax year. 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% These bands haven’t changed since the previous year; the thresholds have been frozen, which means as incomes rise due to inflation or pay increases, more people are being pulled into higher tax brackets. This is known as fiscal drag. So if you earn more than £50,271 in 2025, the portion above that threshold falls into the Higher Rate and gets taxed at 40%. But again that doesn’t mean you’re paying 40% on your entire income. Only on that upper slice. How the 40% Tax Bracket Works Let’s make this simple with real numbers. If your total income for the tax year is £60,000, here’s how your tax would break down: £0 to £12,570 – Taxed at 0% (this is your Personal Allowance) £12,571 to £50,270 – Taxed at 20% (Basic Rate) £50,271 to £60,000 – Taxed at 40% (Higher Rate) So, only the portion above £50,270 in this case, £9,730 gets taxed at 40%. That’s about £3,892 in higher-rate tax. Everything below that line is taxed at the lower rates. Important: The 40% rate only applies to the income within that band, not to your entire salary. You’re not losing 40% of £60,000 : You’re paying 40% only on the slice above the threshold. How to Know if You’re in the 40% Tax Bracket Now that you understand what the 40% tax bracket actually is, the next step is figuring out whether you fall into it. Good news: it’s easier than it sounds. Here’s how to check. 1. Calculate Your Taxable Income Start with your total income for the year this includes salary, bonuses, freelance income, rental income, etc. Then subtract any allowances or tax reliefs you’re entitled to. The most common one? Personal Allowance. For 2025, most people can earn £12,570 tax-free. So, if you earn £65,000: £12,570 is tax-free £52,430 is taxable Since that puts you over the £50,270 higher-rate threshold, you’ll fall partly into the 40% tax bracket. 2. Check Your Tax Code Your tax code tells your employer how much tax to take from your wages. The standard code for 2025 is 1257L, which just means you’re getting the full £12,570 Personal Allowance. If your code is different, it might mean: You’re getting more or less allowance You’re repaying underpaid tax. You have more than one job or source of income A weird-looking code doesn’t always mean something’s wrong, but it’s worth checking if you’re unsure. 3. Use HMRC’s Income Tax Calculator Use the HMRC income tax calculator, it’s free and easy. Just enter: Your total income Your tax code Any deductions (like pension contributions) The calculator will break down your estimated tax, showing how much is taxed at 20%, 40%, or 45%. Heads-up: It’s just an estimate. If your circumstances change mid-year like a bonus, job switch, or freelance spike your final tax bill might differ. Tax Allowances and Reliefs for Higher Rate Taxpayers Just because you’re in the 40% tax bracket doesn’t mean you’re stuck paying 40% on every pound. The UK tax system includes several allowances and reliefs that can reduce your taxable income and, in some cases, pull you back under the higher-rate threshold altogether. Here are some of the key ones you should know about: 1. Personal Allowance The standard Personal Allowance for the 2025 tax year is £12,570 that’s tax-free for most people. However, once your income hits £100,000, that allowance starts to disappear. You lose £1 of allowance for every £2 you earn over £100,000. By the time you earn £125,140, your Personal Allowance is wiped out completely. Tip: Smart pension contributions or charitable donations could reduce your adjusted income and help you keep some or all of your allowance. 2. Blind Person’s Allowance If you’re registered blind or severely sight impaired, you may qualify for the Blind Person’s Allowance, which gives you an extra £2,870 tax-free (on top of your Personal Allowance). You can also transfer it to your spouse or civil partner if you don’t use it all. 3. Marriage Allowance If you’re married or in a civil partnership and your partner is a basic rate taxpayer, you might be able to transfer up to £1,260 of your unused Personal Allowance to them. That could reduce their tax bill by up to £252. It only applies if your income is below the Personal Allowance, so it’s more common among couples where one person isn’t working or earns under £12,570 but still worth checking. 4. Tax Reliefs That Lower Your Bill There are also tax reliefs designed to bring down your taxable income, especially helpful if you’re hovering just inside the 40% band. Pension Contributions Money you put into a pension gets tax relief — and for higher-rate taxpayers, that relief is at 40%. It’s one of the most effective ways to reduce your tax bill. Charitable Giving (Gift Aid) Donations to UK-registered charities using Gift Aid let you claim back the difference between the 20% basic rate and your 40% rate. For example, if you donate £800, it’s treated as £1,000 and you can reclaim £200 in tax relief. Work-related Expenses
