40% Tax Bracket UK

The 40% tax bracket UK applies to non-savings, non-dividend income between £50,271 and £125,140 in England, Wales and Northern Ireland for the 2025/26 tax year. The £50,270 higher rate threshold has been frozen since April 2021 under Finance Act 2022 and remains frozen through to April 2028. HMRC Income Tax statistics show the higher-rate taxpayer population has expanded materially since the freeze began, with OBR fiscal drag analysis identifying the threshold freeze as the single largest source of fiscal drag in the current parliament. The 40% rate applies to the slice of income within the band, not to the whole income.

The 40% rate applies to taxable income between £50,271 and £125,140

The higher rate of 40% applies to non-savings, non-dividend income in the band between £50,271 and £125,140 of taxable income in England, Wales and Northern Ireland for the 2025/26 tax year. Taxable income for this purpose is income after the personal allowance has been deducted. A taxpayer with £55,000 of taxable income (gross income of around £67,570 before the personal allowance) pays 40% on the £4,730 above the threshold, not on the full £55,000. The stepped rate structure is the foundational mechanic of the UK income tax system, set out in section 6 of the Income Tax Act 2007.

The £50,270 threshold has not changed in nominal terms since April 2021. Under the standard practice prior to the freeze, the threshold was uprated annually by CPI under section 21 of the Income Tax Act 2007. Finance Act 2022 disapplies that uprating for the 2022/23 to 2027/28 tax years.

Higher-rate taxpayer numbers have grown materially since the freeze began

HMRC Income Tax statistics show the higher-rate taxpayer population has grown substantially since the threshold freeze began in April 2021, with the OBR forecasting around 6 million higher-rate taxpayers by the end of the freeze period. The mechanism is straightforward fiscal drag. As nominal wages rise with inflation and pay settlements, the share of income taxed at 40% increases automatically without any rate change. The largest growth has been at the lower end of the higher-rate band, where employees previously taxed at 20% have crossed the £50,270 threshold through normal pay rises.

The OBR's Spring Statement and Autumn Statement forecasts have repeatedly identified the threshold freeze as the dominant fiscal drag mechanism in the current forecast horizon. The freeze is scored as generating substantial revenue across the freeze period, with the largest receipts coming from the basic-rate-to-higher-rate transition rather than from higher-band taxpayers.

The 40% rate applies only to the slice of income within the band

The 40% higher rate applies only to the slice of taxable income within the £50,271 to £125,140 band, not to the whole of the taxpayer's income. A taxpayer with £60,000 of taxable income pays no income tax on the first £12,570 (personal allowance), 20% on the next £37,700 (basic rate band, £12,571 to £50,270), and 40% on the final £9,730 (£50,271 to £60,000). The total income tax bill is £11,432, an effective rate of 19.1% on gross income before the personal allowance, despite the headline 40% rate applying to the top slice.

The stepped structure is poorly understood in popular discussion of UK income tax. Surveys cited in evidence to Treasury Committee inquiries have shown sizeable minorities of UK taxpayers believing that crossing the £50,270 threshold subjects all of their income to 40% tax, which is not the case. HMRC published guidance is explicit on the slice-based application.

Pension contributions reduce the 40% liability through marginal relief

Personal pension contributions for a higher-rate taxpayer attract relief at the marginal income tax rate, claimed through self-assessment for the additional 20% above the basic-rate relief delivered at source. A higher-rate taxpayer making a £4,000 net contribution receives £1,000 of basic-rate relief into the pension (taking the gross contribution to £5,000), then claims a further £1,000 of higher-rate relief through self-assessment, reducing the net cost to £3,000. The mechanism is set out in HMRC pension tax relief guidance (PTM series) and the underlying Finance Act 2004 pension framework.

The pension contribution is the most operationally effective lever for reducing 40% tax liability. Salary sacrifice arrangements achieve the same outcome by reducing taxable earnings before the calculation begins, with the additional benefit of saving National Insurance contributions for both employer and employee. HMRC has flagged increased compliance attention on salary sacrifice arrangements in recent guidance.

Savings interest above the personal savings allowance is taxed at 40%

Savings interest above the £500 personal savings allowance for higher-rate taxpayers is taxed at 40%, applying to interest received from banks, building societies, and most other savings accounts. The personal savings allowance was set at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers in 2016 by Finance Act 2016, and has not been increased since. With Bank of England base rate at 5.25% during the recent monetary tightening cycle, the value of fixed-deposit interest has risen sharply, pulling many higher-rate taxpayers into a tax position they previously avoided.

Additional-rate taxpayers (income above £125,140) have a zero personal savings allowance and pay 45% on all savings interest. HMRC reconciles the position through PAYE adjustments or self-assessment, depending on the taxpayer's filing position. ISA-sheltered savings remain exempt from income tax on interest, making ISA allocation the standard mitigation route.

Dividend income above the £500 allowance is taxed at 33.75% for higher-rate taxpayers

Dividend income above the £500 dividend allowance is taxed at 33.75% for higher-rate taxpayers in 2025/26, having been cut from £1,000 to £500 from April 2024 under Finance Act 2023. The dividend allowance applies regardless of the source of the dividends, including private company dividends and listed portfolio dividends. The 33.75% rate is the same across the higher-rate band, with the additional-rate dividend rate of 39.35% kicking in above £125,140. HMRC dividend income guidance is the operational reference for the calculation.

The dividend allowance cut from £2,000 to £1,000 in April 2023 and to £500 in April 2024 has pulled materially more taxpayers into dividend tax. The OBR scored the change as bringing an additional several million taxpayers into the dividend tax net by the end of the forecast horizon. ISA-held shares remain exempt from dividend tax.

HMRC operates the 40% rate through PAYE codes and self-assessment

HMRC operates the 40% higher rate through standard PAYE tax codes for employees and through self-assessment for those with additional income, with the higher rate applied automatically by payroll systems above the relevant threshold. The PAYE system uses a cumulative basis by default: each pay period calculates tax as if the year-to-date income were the annualised position, ensuring the right total tax is collected by year-end. Taxpayers with multiple income sources, untaxed savings interest, or self-employment income reconcile through self-assessment.

For employees with substantial benefits in kind (company cars, private medical insurance, etc.), HMRC adjusts the tax code to recover the tax on those benefits through PAYE, with the underlying P11D return filed by the employer at year-end. The mechanism keeps the higher-rate liability collected in-year rather than waiting for self-assessment reconciliation.

When do you pay 40% tax UK 2025?

The 40% higher rate begins at £50,271 of taxable income in England, Wales and Northern Ireland for the 2025/26 tax year. Taxable income is gross income less the personal allowance of £12,570, so the gross income point at which 40% begins is £62,840 for a taxpayer with the standard personal allowance and no other deductions.

What is the 40 tax threshold 2025?

The higher rate threshold is £50,270 of taxable income, the same as 2024/25, because the threshold has been frozen since April 2021 under Finance Act 2022. The freeze runs through to April 2028.

How does the 40 tax bracket 2025 differ from the additional rate?

The 40% higher rate applies to taxable income between £50,271 and £125,140. Above £125,140, the additional rate of 45% applies. The £125,140 additional rate threshold was reduced from £150,000 by Finance Act 2022 with effect from April 2023.

What is the higher rate tax UK on dividends?

Dividend income above the £500 dividend allowance is taxed at 33.75% for higher-rate taxpayers per HMRC dividend income guidance. The dividend allowance was cut from £2,000 to £1,000 in April 2023 and to £500 in April 2024 under Finance Act 2023.

Do pension contributions reduce 40% tax?

Yes. Personal pension contributions attract relief at the marginal income tax rate. A higher-rate taxpayer receives 20% basic-rate relief at source on contributions paid net, and claims a further 20% through self-assessment. Salary sacrifice arrangements deliver the same relief alongside National Insurance savings.

Does the 40% rate apply to all of my income once I cross £50,270?

No. The 40% rate applies only to the slice of taxable income above £50,270 and up to £125,140. Income below £50,270 continues to be taxed at the basic rate of 20% or covered by the personal allowance, as the stepped-rate structure set out in section 6 of the Income Tax Act 2007 prescribes.

How we verified this

This article draws on the following primary UK sources:

• HMRC Income Tax rates and allowances (2025/26 publication)
• HMRC Income Tax statistics on taxpayer numbers by band
• Finance Act 2022 (legislation.gov.uk) for the threshold freeze
• Income Tax Act 2007 (legislation.gov.uk) for the underlying rate structure
• OBR fiscal drag analysis and Spring Statement / Autumn Statement scoring
• gov.uk Tax on savings interest and Tax on dividends guidance
• ONS Annual Survey of Hours and Earnings (ASHE) earnings by percentile

No secondary aggregators, no press releases from commercial providers, and no statistics without a named government or regulatory source were used.