Understanding the 40% Tax Bracket
The 40% higher rate is the second tax band in England, Wales and Northern Ireland. For 2025/26, it applies to taxable income between £37,701 and £125,140 (equivalent to total earnings between £50,271 and £125,140 after the personal allowance).
Important: You only pay 40% on income above £50,270. The UK uses a progressive system - you still pay 0% on the first £12,570 and 20% on income between £12,571 and £50,270.
| Tax Band | Taxable Income | Rate |
|---|
| Personal Allowance | £0 - £12,570 | 0% |
| Basic Rate | £12,571 - £50,270 | 20% |
| Higher Rate | £50,271 - £125,140 | 40% |
| Additional Rate | Above £125,140 | 45% |
Combined Tax + National Insurance Rates
When you add National Insurance, the true marginal rates are higher than just income tax alone:
| Income Band | Income Tax | Employee NI | Combined Rate |
|---|
| Up to £12,570 | 0% | 0% | 0% |
| £12,571 - £50,270 | 20% | 8% | 28% |
| £50,271 - £100,000 | 40% | 2% | 42% |
| £100,001 - £125,140 | 40% + PA taper | 2% | 62% |
| Above £125,140 | 45% | 2% | 47% |
The 60% trap: Between £100,000 and £125,140, you lose £1 of personal allowance for every £2 earned. This creates an effective 62% marginal rate (40% tax + 20% lost allowance + 2% NI). Pension contributions can eliminate this entirely.
How to Reduce Your 40% Tax Bill
If you are a higher rate taxpayer, these are the most effective legal strategies to reduce your tax:
1. Pension Contributions: Every £1 you contribute to a pension effectively costs you only 60p as a higher rate taxpayer. Your provider adds 20% basic rate relief automatically, and you claim the additional 20% through Self Assessment. A £10,000 pension contribution saves you £4,000 in tax.
2. Salary Sacrifice: If your employer offers salary sacrifice for pensions, childcare or cycle-to-work schemes, your gross pay is reduced before tax. This can bring you below the £50,270 threshold entirely, also saving National Insurance for both you and your employer.
3. Gift Aid: Charitable donations through Gift Aid extend your basic rate band. A £1,000 Gift Aid donation increases your basic rate band by £1,250, moving £1,250 of income from 40% to 20% and saving you £250.
4. ISA Allowance: Use your £20,000 annual ISA allowance to shelter savings and investments from tax. Interest and gains within an ISA are completely tax-free.
5. Marriage Allowance: Not available if you are a higher rate taxpayer yourself, but your non-earning spouse can transfer £1,260 of their allowance to a basic rate spouse. If only one partner is in the higher rate band, careful income splitting may help.
Scottish Higher Rate Tax Bands 2025/26
Scotland has its own income tax rates which differ significantly from the rest of the UK. There is no 40% band in Scotland - instead, it has a 42% higher rate starting at a lower threshold:
| Scottish Band | Taxable Income | Rate |
|---|
| Personal Allowance | £0 - £12,570 | 0% |
| Starter Rate | £12,571 - £14,876 | 19% |
| Basic Rate | £14,877 - £26,561 | 20% |
| Intermediate Rate | £26,562 - £43,662 | 21% |
| Higher Rate | £43,663 - £75,000 | 42% |
| Advanced Rate | £75,001 - £125,140 | 45% |
| Top Rate | Above £125,140 | 48% |
Key difference: Scottish taxpayers enter the higher rate at £43,663, which is £6,607 lower than the £50,270 threshold in the rest of the UK. A Scottish taxpayer earning £50,270 pays approximately £1,500 more in income tax than an English taxpayer on the same salary.
Frequently Asked Questions
When do I start paying 40% tax?
You start paying 40% tax when your taxable income exceeds £37,700 (the basic rate band), which means a total income above £50,270 (personal allowance of £12,570 plus £37,700). Only income above £50,270 is taxed at 40% - you still pay 20% on the portion between £12,571 and £50,270.
What is the higher rate tax threshold for 2025/26?
The higher rate tax threshold for 2025/26 is £50,270. This is made up of the £12,570 personal allowance plus the £37,700 basic rate band. Income between £50,271 and £125,140 is taxed at 40%. The threshold has been frozen since 2021/22 and will remain frozen until at least April 2028.
How much tax do I pay on a £60,000 salary?
On a £60,000 salary in 2025/26, you pay: £0 on the first £12,570 (personal allowance), £7,540 at 20% on income from £12,571 to £50,270, and £3,892 at 40% on the £9,730 above £50,270. Total income tax: £11,432. Plus National Insurance of approximately £3,817 (8% on £12,571-£50,270 and 2% above).
How can I avoid paying 40% tax?
Legal ways to reduce your 40% tax bill include: pension contributions (which receive tax relief at your marginal rate), salary sacrifice arrangements (reduce gross pay below £50,270), Gift Aid donations (extend your basic rate band), making use of your ISA allowance (£20,000/year tax-free), and spreading income between tax years where possible.
Is 40% tax on all my income or just part of it?
The 40% rate only applies to income above £50,270, not your entire salary. The UK uses a progressive tax system: the first £12,570 is tax-free, income from £12,571-£50,270 is taxed at 20%, and only the amount above £50,270 is taxed at 40%. This is a common misconception.
What is the 40% tax rate in Scotland?
Scotland does not have a 40% rate. Instead, Scottish taxpayers pay 42% on income between £43,663 and £75,000 (higher rate), 45% between £75,001 and £125,140 (advanced rate), and 48% above £125,140 (top rate). The Scottish higher rate threshold of £43,663 is lower than the rest of the UK's £50,270.
Do pension contributions reduce my 40% tax?
Yes. Pension contributions receive tax relief at your marginal rate. If you pay 40% tax and contribute £10,000 to a pension, you receive £4,000 in tax relief (£2,000 automatically added by your provider at 20%, and £2,000 claimed through Self Assessment). Salary sacrifice pension contributions can also bring your gross pay below the higher rate threshold.
What is the effective tax rate including National Insurance?
For higher rate taxpayers earning between £50,271 and £125,140, the combined marginal rate of income tax and National Insurance is 42% (40% income tax + 2% NI). For income between £12,571 and £50,270, the combined rate is 28% (20% income tax + 8% NI). Between £100,000 and £125,140, the effective rate is 62% due to personal allowance taper.