Exploring the UK 40% Tax Bracket: A Quick Guide

A good salary rise, bonuses, or winning new clients can inspire anyone. One should spare some time and celebrate these wins. Whether you are excited about your well-earned achievement or enjoying your new client’s arrival on board, you may notice a 40% tax bracket getting closer. Do you know what it means?

Read this article to find out what a 40% tax bracket means. How much can you earn before reaching the threshold, and how will it impact your tax bill?

The Implications of Being in the 40% Tax Bracket

The 40% tax bracket is the “higher rate” income tax band implemented on those who earn more than £50270. The rates for income tax are mentioned below.  

• Income tax starts with a personal allowance.
• Then, it moves at a basic rate.
• The third is the Higher rate.
• And then there comes the additional rate.

The income tax rates for England, Wales, and Northern Island for 2023-24 and 2024-25 are mentioned below.

Tax Rate	Tax Band Threshold 2023-2024	Tax Band Threshold 2024-2025
Personal Allowance: You can earn up to a certain amount before owing income tax. There is no tax on this income.	£0 – £12,570	£0 – £12,570
Basic Rate Income Tax Tax at 20% applies to the income within this bracket.	£12,571– £50,270 20%	£12,571 – £50,270 20%
Higher Rate Income Tax The tax band for this portion of your income is 40%.	£50,271– £125,140 40%	£50,271– £125,140 40%
Additional Rate Income Tax The highest rate is applied to income above this threshold, taxed at 45%	£50,271 – upwards  45%	£125,140, upwards 45%

What income should I earn to be in the 40% tax bracket?

You can be in the 40% tax bracket if your total income for the tax year rises from the basic rate toward the higher rate bracket. The higher tax rate bracket for 2023/2024 and 2024/2025 is £50271-£125140. So, your amount within this range will be taxed at 40%. If the amount exceeds £125,140, you will pay an additional tax of 45%.

Is there any change in the 40% tax bracket over the years?

The government can change this 40% tax bracket as part of the annual budget. However, they are unlikely to change it anytime soon because the current personal tax-free allowance and bands are frozen until 2028. It is necessary to monitor how much of your allowance you are eligible for and your current taxes. 

Should I have to pay a 40% tax on all my earnings?

No, you don’t have to pay 40% tax on all your earnings. It’s a misapprehension that once you cross the tax band, you will pay the new tax rate on every dollar you earn. 

We have explained your tax bracket in the following table with an example.

If you earn £55000 each year, you will pay.

Zero% tax	On First £12570
20% tax	On the Earnings between £12571-£50270
40% Tax	On the earnings between £50,271-£55000

What does the marginal tax rate mean?

The marginal tax is the amount you spend on your highest pound of income. If you earn £60000 per year, your marginal tax rate is 40%, the tax bracket you are in for the next pound you gain.

What does a higher rate of tax mean for your savings allowance?

You are entitled to a personal saving allowance in the basic or higher rate tax band. This allowance allows you to earn up to £1000 in interest on your savings without paying any tax. However, note that as you enter the higher rate bracket, your allowance will reduce from £1000 to £500.

Can I reduce my tax bill if I am at a higher rate?

You earn more when you get eligible for a 40% tax bracket. This can also be useful to make sure you are tax-efficient. 

Check if you are eligible for any tax allowances.

In the UK, you can pay several tax allowances. For instance, if you are married, you will be entitled to a marriage allowance if you and your spouse meet the requirements.

If you are self-employed and have a business, you can deduct allowable expenses to decrease your tax bill. You might even claim different types of allowances and relief for Capital Gains Tax.