If you’re reading this blog, you must be curious about the 40% tax bracket in the UK. In that case, you’ve come to the right place. I will go into the details of this higher tax bracket (that’s what a 40% tax bracket is called), how this affects your income, and how to reduce the taxes when you fall in this category effectively.
So, What is the 40% Tax Bracket?
In the UK, incomes between £ 50,271 and £ 125,140 fall under the 40% tax bracket or “Higher Rate,” which is one of the three main income tax bands. Taxable income above the lower limit of this range is taxed at 40%, and the remaining is taxed at 20% for the tax year 2024/25.
How the UK Tax System Works
Before further detailing the 40% tax bracket, let’s understand how the UK tax system works. UK government levies test on an individual basis on annual income. A person who earns £12,570 or less doesn’t need to pay any tax. Above this threshold are three leading tax bands:
There is a basic rate tax, a higher rate tax band, and an additional tax band. The income tax rates for all these bands are different, as shown in the table below.
| Tax Band | Taxable Income | Tax Ratio |
| Standard Personal Allowance | £12,570 or less | 0% |
| Basic | £12,570 to £50,271 | 20% |
| Higher | £50,271 to £125,140 | 40% |
| Additional | £125,140 or higher | 45% |
Who Falls Under the 40% Tax Bracket?
In tax year 2024/25, you’re bound to pay 40% tax if your income, after deductions and allowances, falls between £50,271 and £125,140. This type of tax mainly affects people with high salaries, rentals, pensions, and considerable self-employment benefits.
In addition, if you have exhausted your tax-free personal allowance, you must pay tax on a part of your income.
Understanding Marginal Tax Rates
Marginal tax rates mean the tax doesn’t apply to all your income but a marginal portion that falls in the respective Tax band. For example, when it comes to the 40% tax bracket, only income that’s above £50,271 and lower than £125,140 is a taxable amount.
To make it clearer, consider your income as £60,000. Now, income below £50,271 is taxed at 20%, and the amount above that is taxed at 40%.
How Much Income Tax Will I Pay in the 40% Bracket?
To calculate your tax, let’s divide your income into the relevant tax bands:
| First £12,570 (Standard Personal Allowance) – 0% tax |
| £12,571 to £50,270 (Basic rate) – 20% tax |
| £50,271 to £125,140 (Higher rate) – 40% tax |
| Over £125,140 (Additional rate) – 45% tax |
For example, if your taxable income is £60,000:
| £12,570 x 0% = £0 |
| £37,700 x 20% = £7,540 |
| £9,730 x 40% = £3,892 |
| Total tax = £11,432 |
Hence, your effective tax rate, also called total tax as a percentage of income is 19%, but your marginal tax rate is 40%.
Strategies to Reduce Taxes in the 40% Bracket
Here are some ways you can employ to reduce your taxes in the 40% Tax bracket legally:
1. Effectively use deductions and tax allowances
You must check if you’re eligible for specific UK tax-free allowances such as marriage or self-employment allowances.
2. Make use of tax-efficient savings and investment
Use ISAs that save your savings and investment from taxes. ISAs are individual saving accounts that help you reduce your taxable income so you pay no tax on dividend income or interest you receive.
3. Claim tax relief in charitable donations
You should also make some charitable donations that extend your basic rate band. As a higher-salaried person, whenever you donate, both you and the organization get more money.
4. Explore employer schemes and pension contributions
Pension contributions and other employer schemes are tax-free, so exploring such options will give you various tax reliefs. Your overall taxable income also decreases when you pay some amount in pension contributions, and the deducted tax is returned to you.
5. Transfer income-generating assets
Transferring your income-generating assets to your family members, like your spouse, also helps you reduce the total income you make, reducing the marginal tax bill.
Does the 40% Tax Bracket Change Over Time?
Yes, the 40% tax bracket is subject to change and is readjusted yearly by the government based on inflation and other factors. This change applies to all other tax bands, not just the higher rate tax band. But for now, the Government has frozen all the income tax rates until 2028, with no change until then.
What Does My Tax Code Mean About the 40% Bracket?
Your tax code shows how much tax-free income or Personal Allowance you should get and how much your employer or pension provider uses to calculate the tax to deduct from your pay.
For those in the 40% bracket, standard tax codes for 2024/25 are:
- 1257L – This is the default code for those with one job and no taxable benefits. It allows £12,570 tax-free.
- K codes – This is when your taxable benefits exceed your Allowance
- NT – You are not paying any tax on this income
- BR – All income from this source is taxed at 20%, which means essential rat.
- D0 – All income from this source is taxed at a 40% higher rate.
Check your tax code each year and contact HMRC if you think it’s wrong.
Final Thoughts: Planning for Higher Taxes
As you keep earning more, your tax rates increase simultaneously. So, to be financially stable and enjoy more tax benefits, you need to plan.
- Practical usage of deductions and tax allowances
- Tax-efficient savings and investments
- Charitable donations
- Employer schemes and pension contributions, and
- Transferring income-generating assets
help you reduce your taxable income, and you can count on your success.
FAQs
In the 2024/25 tax year, you can earn £50,270 before paying 40% tax rates.
The highest tax bracket is the additional tax rate, which is 45%.
No, you only pay 40% tax on taxable income between £50,271 and £125,140. Income below £50,271 is taxed at 0% or 20%.
If your income is 50k, then after tax and National Insurance, you’re left with £37,486 in the UK.
