40 Tax Rate UK

Are you about to enter the 40% tax bracket — or already there and wondering where your money’s going?

You’re not alone. The UK’s 40% tax rate often catches people off guard, especially when promotions, bonuses, or side income push their earnings above the threshold.

But here’s the thing:
You don’t pay 40% on all your income — and there are smart ways to reduce what you owe.

This guide breaks down exactly what the 40% tax rate in the UK means, who it applies to, and how to reduce your tax bill legally — all based on the latest rules for the 2025/26 tax year. Whether you’re an employee, landlord, contractor, or business owner, we’ll answer your key questions like:

At what income does 40% tax start?

Can I reduce my tax bill with pensions or donations?

What happens if I earn over £100,000?

Let’s get clear on how the 40% tax rate works — and how you can keep more of what you earn.

What Is the 40% Tax Rate in the UK?

The 40% tax rate is called the Higher Rate of Income Tax and applies to earnings between £50,270 and £125,140 .

In the UK, income tax is charged using a system of progressive tax bands. This means you only pay higher rates on income that falls within specific ranges, not on your entire earnings.

The 40% rate is one of these bands, officially referred to as the “higher rate.” It sits between the basic rate (20%) and the additional rate (45%).

Is It the Higher Rate or the Additional Rate?

Many people confuse the 40% rate with the top rate of tax. Here’s the difference:

• Basic Rate (20%) – Income between £12,571 and £50,270
• Higher Rate (40%) – Income between £50,271 and £125,140
• Additional Rate (45%) – Income above £125,140

So if you’re earning within the £50k–£125k range (before deductions), you’ll be taxed at 40% on that portion of income — not your total earnings.

How UK Income Tax Bands Work 

Here’s a simplified breakdown:

Remember, you only pay 40% on the income within the higher rate band — not on your entire salary.

“The UK’s 40% tax rate, known as the higher rate, applies to income earned between £50,270 and £125,140 after the personal allowance in the 2025/26 tax year.”

Who Pays the 40% Tax Rate in the UK?

You pay the 40% tax rate if your taxable income exceeds £50,270 in the 2025/26 tax year — after your personal allowance is applied.

This higher rate typically applies to middle- and high-income earners in the UK. It doesn’t matter whether you’re an employee, self-employed, or receiving passive income — what matters is your total taxable income.

What Income Qualifies for 40% Income Tax?

The 40% rate applies to most forms of income, including:

• Salary and wages
• Self-employment income
• Rental income
• Bonuses and commissions
• Dividends (with some special tax rules)
• Pension income (state or private)
• Certain benefits from work (like company cars)

👉 The key factor is whether your total income pushes you into the higher-rate band after deductions and allowances.

Are Bonuses, Rental Income, and Dividends Included?

Yes — all these count toward your total taxable income.

• A bonus from work could push your salary into the 40% bracket.
• If you’re a landlord, rental profits are added to your income and taxed accordingly.
• Dividends have their own tax bands, but if your total income places you in the higher rate, dividends are taxed at 33.75% instead of the basic 8.75%.

Tip: Even if your salary is under £50,000, side income can push you into the 40% bracket.

Most People Ask for:

“How much can I earn before paying 40% tax?”
You start paying 40% tax on income above £50,270 (2025/26), after your personal allowance of £12,570 is used.

“Do I pay 40% tax on all my income?”
No — only on the income that falls between £50,271 and £125,140. The rest is taxed at lower rates.

How Do Personal Allowance and Tax Bands Affect the 40% Rate?

Your Personal Allowance reduces your taxable income — but it starts to shrink once your income exceeds £100,000.

The Personal Allowance is the portion of your income you can earn tax-free. For the 2025/26 tax year, it’s £12,570. However, if your income is high enough, you’ll start losing this allowance, which effectively pushes more of your income into the 40% and 45% bands.

What Is the Personal Allowance in ?

Standard Personal Allowance: £12,570

You get the full allowance if your adjusted net income is below £100,000.

Above £100,000, you lose £1 of allowance for every £2 of income.

This means:

At £125,140, your Personal Allowance is reduced to zero.

Every extra pound you earn between £100,000 and £125,140 is effectively taxed at 60% when you account for the lost allowance.

How Does Income Over £100,000 Affect Your Tax?

Let’s say you earn £110,000:

• You’re £10,000 over the £100k threshold.
• You lose £5,000 of your personal allowance.
• Your taxable income becomes £110,000 – £7,570 = £102,430
  (instead of £110,000 – £12,570).

This “hidden tax trap” often surprises people, and it makes tax planning even more important once your income crosses £100k.

Quick Summary:

 “In 2025/26, the Personal Allowance is £12,570. You start losing it once income exceeds £100,000 and lose it entirely at £125,140 — pushing more of your income into the 40% or 45% tax brackets.”

Most People Ask for:

“Why do people say income over £100k is taxed at 60%?”
Because you lose £1 of personal allowance for every £2 earned over £100,000 — which effectively adds another 20% tax burden on top of the 40%.

“Can I get my allowance back if my income drops?”
Yes. If your income falls below £100,000 in future tax years, your full Personal Allowance is restored.

How to Calculate 40% Tax on Your Income

You only pay 40% tax on the portion of your income that falls between £50,270 and £125,140, not on your entire salary.

Understanding how the 40% tax rate works is simpler than most people think — it’s all about where your income sits within the tax bands. Your income is sliced into chunks, and each chunk is taxed at the appropriate rate. Let’s walk through a couple of real-world examples so it’s easy to follow.

Example: Earning £70,000 in 2025/26

Suppose you earn £70,000 a year. You get a Personal Allowance of £12,570, which is tax-free. That leaves £57,430 of taxable income.

The first £37,700 of that is taxed at 20%, which comes to £7,540.

The remaining income — £19,730 — falls into the 40% band. So, you’ll pay 40% on that portion, which works out to £7,892.

In total, your income tax bill would be around £15,432 — but remember, only part of it is taxed at the higher rate. You’re not paying 40% across your full income.

Example: Earning £130,000

Now take someone earning £130,000. Because their income exceeds £125,140, they lose the full Personal Allowance — so their entire salary is taxable.

The income up to £50,270 is taxed at 20%, the chunk between £50,271 and £125,140 is taxed at 40%, and anything above that (in this case, the £4,860 between £125,140 and £130,000) is taxed at 45%.

This person ends up paying:

• 20% on the first slice
• 40% on the next
• 45% on the top

As a result, their total tax bill jumps significantly — which is why smart tax planning becomes so important at this level.

The Key Takeaway

You never pay 40% on your entire income — just the part that falls inside the higher-rate bracket. And once your income hits six figures, it’s worth reviewing how things like pension contributions or donations could help reduce your tax bill.

“You only pay 40% tax on income between £50,270 and £125,140. Income below that is taxed at 20%, and above that at 45%.”

Can I Reduce My 40% Tax Bill Legally?

Yes — you can legally reduce your 40% income tax through smart planning, such as making pension contributions, giving to charity, or claiming tax reliefs you’re entitled to.

Many higher-rate taxpayers in the UK are paying more than they need to, simply because they aren’t aware of the reliefs and strategies available. HMRC allows — and even encourages — certain ways to reduce your taxable income. These methods are 100% legal and can significantly reduce the portion of your income taxed at 40%.

Pension Contributions: One of the Most Powerful Tools

Contributing to a pension can lower your taxable income — sometimes enough to pull you below the 40% threshold altogether.

Let’s say you earn £60,000 and contribute £10,000 to a pension. That reduces your taxable income to £50,000 — meaning you stay within the basic rate band and avoid the 40% rate.

Pension contributions benefit you in two ways:

1. You get tax relief at your highest rate — in this case, 40%.
2. You reduce your overall taxable income, which can help preserve your Personal Allowance if you’re over £100k.

Gift Aid Donations

Donating to charity through Gift Aid also reduces your tax bill.

When you make a Gift Aid donation, HMRC treats it as if you’ve already paid basic rate tax on it. As a higher-rate taxpayer, you can claim the difference between the higher rate (40%) and the basic rate (20%) on the donation value via your tax return.

For example:

You donate £1,000 to a charity.

The charity claims £250 from HMRC (making it £1,250 total).

You can reclaim £250 yourself in tax relief.

Claimable Expenses for Self-Employed or Business Owners

If you’re self-employed or run a limited company, make sure you’re deducting all eligible business expenses, such as:

• Travel and accommodation
• Office costs
• Marketing expenses
• Professional subscriptions

These reduce your net profits, which in turn reduces the portion of income taxed at 40%.

Quick Summary :

“To reduce your 40% tax, consider pension contributions, Gift Aid donations, and claiming allowable expenses. These strategies can lower your taxable income legally and efficiently.”

Most People Ask for:

“Can I avoid 40% tax legally?”
Yes — through tax reliefs like pensions and Gift Aid, you can reduce the amount of income taxed at 40%. 

“Do pension contributions reduce 40% tax?”
Absolutely. They reduce your taxable income and you get 40% tax relief on the contribution amount.

“Is salary sacrifice worth it at higher rate?”
Yes — especially for pensions or childcare. It reduces both your income tax and National Insurance contributions.

What Happens If I Earn Over £125,140?

Once your income goes above £125,140, you move into the additional rate tax band, where income is taxed at 45%, and you also lose your entire Personal Allowance.

At this stage, you’re no longer affected by the 40% band — any income above £125,140 is taxed at the highest rate of income tax in the UK. This is often where people begin to feel the steepest jump in their tax bill.

The Personal Allowance Is Gone

When your income hits £125,140, your tax-free Personal Allowance disappears entirely due to the tapering rule. That means your entire income is subject to tax, starting from the first pound.

For example:

If you earn £130,000, you pay:

20% on the first £37,700

40% on the next £74,870

45% on the final £4,860
(And no Personal Allowance applies.)

This results in a significantly higher effective tax rate, especially when combined with National Insurance or dividend taxes if you’re a director.

Time for Tax Planning — Not Panic

If your income regularly exceeds this level, you might want to:

• Consider salary sacrifice into pensions to drop your taxable income.
• Split income with a spouse (if they’re in a lower tax band).
• Defer bonuses or dividends if possible to avoid crossing into the 45% band within one tax year.

High earners often benefit most from working with a qualified accountant or tax planner to make sure they’re not paying more than necessary.

“When your income goes above £125,140, you enter the 45% additional rate band and lose your full Personal Allowance — increasing your overall tax liability significantly.”

 Most People Also for:

“Is income over £125,140 taxed at 45%?”
Yes — any income beyond £125,140 is taxed at the additional rate of 45%.

“Do I lose all my Personal Allowance over £125,140?”
Yes — your Personal Allowance is fully removed once your income reaches £125,140.

“How do high earners reduce tax legally?”
Through pension contributions, Gift Aid, income splitting, and working with an accountant to create a tailored tax strategy.

Common Misconceptions About the 40% Tax Rate

The 40% tax rate only applies to the part of your income within the higher-rate band — not your entire income.

It’s easy to panic when you hear you’re in the 40% tax band. But the reality is, the UK tax system is progressive. That means your income is taxed in stages — not all at once at the same rate.

Let’s debunk the biggest myths.

❌ Misconception #1: “I earn £55,000, so I pay 40% tax on everything.”

No — you only pay 40% on the amount above £50,270. Everything below that is taxed at 20%, and the first £12,570 (assuming you still get the Personal Allowance) is tax-free.

So in this case, only £4,730 is taxed at 40%, which comes to about £1,892 — not 40% of your total salary.

❌ Misconception #2: “If I get a bonus, I’ll lose money because it pushes me into a higher band.”

Also false. If your bonus pushes part of your income into the 40% or even 45% tax bracket, only that portion is taxed at the higher rate — not your whole income. You’re still better off with the bonus — just paying a bit more tax on the top slice.

❌ Misconception #3: “Only employees pay the 40% rate.”

Incorrect. The 40% rate applies to anyone with taxable income above £50,270, including:

• Sole traders
• Company directors
• Landlords
• Retirees with large pension drawdowns
• Individuals with investment income

The source of income doesn’t change the tax rate — only the total amount you receive in a tax year matters.

 Tip: Always focus on your taxable income, not just your gross salary.

You might be able to stay out of the 40% bracket (or reduce how much of your income sits there) by making strategic pension contributions, claiming reliefs, or adjusting how and when you receive income.

 “In the UK, you only pay 40% tax on the portion of your income that falls between £50,270 and £125,140 — not your whole salary. The tax system is tiered, not flat.”

Most People Ask for:

“Do I pay 40% on my total salary?”
No — only the amount above £50,270 is taxed at 40%.

“Will a bonus push all my income into 40% tax?”
No — only the portion above the threshold is taxed at 40%. You’ll still take home more overall.

“Does rental or dividend income count toward the 40% threshold?”
Yes — both are included in your total income and can push you into a higher tax band.

Should You Get Help from a Tax Adviser or Accountant?

When the 40% Tax Band Demands a Second Look

If you’ve crossed into the 40% tax bracket — or you’re getting close — it’s worth taking a serious look at how your income is structured. While many people simply accept the higher tax as a part of earning more, smart earners know there’s often room to legally reduce the amount you hand over to HMRC.

That’s where a tax adviser comes in.

Once your income goes beyond £50,270, your personal allowance is either shrinking or gone entirely. And if you’re earning over £100,000, you’re likely stuck in what’s often called the “60% effective tax trap” — a band where for every extra £1 you earn, you lose 60p in tax and allowance tapering. It’s frustrating, confusing, and expensive.

Whether you’re employed, self-employed, a company director, or juggling income from multiple sources like property or dividends — once you enter this tax territory, the margins get tighter and tax planning becomes critical.

What a Tax Adviser Can Help You Do

The right accountant doesn’t just file your self-assessment — they help you spot hidden opportunities to bring your effective tax rate down.

For example, they might recommend contributing more to your pension, which not only grows your retirement fund but also reduces your taxable income. Or they might guide you to restructure how you receive income — shifting from salary to dividends, using salary sacrifice schemes, or timing bonuses better.

They can also help if you’ve accidentally moved into the child benefit tax charge zone, or if you’re unsure how Gift Aid donations impact your liability. These areas seem small, but together they could save you hundreds or even thousands each year.

And the real benefit? Peace of mind. You’ll know you’re not paying a penny more than necessary — and you’ll be compliant, confident, and likely better off.

Quick Summary :

If your income falls in the 40% tax band, a tax adviser can help reduce your tax bill legally through pension planning, income restructuring, and allowances — saving you time and money.

5 Practical Ways to Reduce Your 40% Tax Bill in the UK

Being taxed at 40% doesn’t mean you’re stuck paying that rate on every pound you earn. In fact, there are several completely legal, HMRC-approved strategies that could bring your overall tax bill down — if you know how to use them.

Here are five smart, actionable ways to reduce your income tax if you’re in the higher-rate band:

1. Make Use of Pension Contributions

One of the most effective ways to reduce your taxable income is by contributing more to your pension. Every pound you add to your pension reduces your taxable income — which could pull you below the 40% threshold or restore your Personal Allowance.

For example, if you earn £60,000 and contribute £10,000 into your pension, you’ll only be taxed as if you earned £50,000 — placing you back in the basic rate band.

2. Claim Higher Rate Relief on Gift Aid Donations

Donating to charity under the Gift Aid scheme doesn’t just benefit the cause — it can also reduce your tax bill. If you’re a higher-rate taxpayer, you can claim an extra 20% tax relief on those donations through your Self Assessment.

Not only does the charity get a 25% boost, but you get rewarded too — as long as you remember to claim it.

3. Use Salary Sacrifice Schemes

Many employers offer salary sacrifice schemes for pensions, cycle-to-work programs, or electric vehicles. These reduce your gross income and therefore the amount you pay in tax and National Insurance.

For higher earners, this can be a very efficient way to retain value without increasing taxable pay.

4. Consider Dividends if You’re a Company Director

If you run your own business, it’s often more tax-efficient to pay yourself through a mix of salary and dividends. Dividends are taxed at a lower rate and can help keep your income under key tax thresholds.

A tailored income strategy can significantly reduce your overall liability when managed properly with an accountant.

5. Time Your Income and Bonuses Strategically

You don’t always have to accept a bonus or lump sum income in the same tax year. With proper planning, some payments can be deferred into the next tax year — helping you stay below key thresholds like £50,270 or £100,000.

If you’re close to losing your personal allowance or moving into the 45% band, timing becomes everything.

Final Tip:

A few smart choices each year can cut your tax bill without cutting your income — but only if you plan ahead.

Navigating the 40% Tax Rate Smartly

Crossing into the 40% tax bracket in the UK can feel like a financial penalty for your hard work — but it doesn’t have to be. While it’s true that higher-rate taxpayers shoulder more of the burden, you still have plenty of control over how much you ultimately pay.

Understanding how the 40% tax rate works, how it interacts with your allowances, and where smart planning can reduce your liability is key to protecting your income and planning your future.

Final Advice

Don’t just let the taxman take more than necessary. The biggest tax savings often come from proactive planning — not last-minute decisions. Whether through pension contributions, charitable giving, or restructuring your income, the right strategies can help you legally and ethically reduce your tax bill.

And remember, the more complex your finances become — the more valuable expert advice becomes.

Need help managing your income tax?

Let Eternity Accountants guide you through your tax position, identify savings, and give you peace of mind.

👉 Contact Eternity Accountants today for expert, tailored tax advice — and start keeping more of what you earn.