Understanding income tax bands is important if you want to avoid surprises on your payslip or tax return. One of the most commonly asked questions is “What is the 40% tax bracket, and when does it apply?”
The 40% tax bracket applies to higher-rate taxpayers and affects how much tax you pay on part of your income. Understanding this bracket can help you manage your allowances and reduce unnecessary tax.
In this article, we explain what is the 40% tax bracket London, who it applies to, its thresholds and other aspects.
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What is the 40% Tax Bracket?
The 40% tax rate is also known as the higher-rate tax band in the UK. It applies to taxable income between £50,271 and £125,140. This means you pay 40% tax only on the earnings above this threshold. The additional rate of 45% applies to income over £125,140.
Who Pays 40% Tax in the UK?
Once you understand what is the 40% tax bracket, it is important to know who it applies to. It applies to higher-rate taxpayers, including employees and self-employed individuals with taxable income in the range of £50,271 to £125,140. Income below this threshold is taxed at 20%, and the bands are currently frozen until April 2028.
When Does the 40% Tax Bracket Start and End?
The 40% higher-rate tax brackets starts applying to a taxableincome of £50,271. Furthermore, as per the 40% tax bracket mentioned above, it ends at the taxable income of £125,140. Thus, it starts after the basic limit is exceeded and ends when the 45% additional rate threshold is reached.
How UK Tax Brackets Actually Work?
After understanding what is the 40% tax bracket, it is useful to know how UK tax bands work in practice.
Personal Allowance
A 0% tax applies to income between £0 and £12,570. This means no income tax is payable if you earn below £12,571.
Basic Rate
The basic rate or 20% applies to incomes between £12,571 and £50,270.
Higher Rate
The higher rate of 40% applies to income between £50,271 and £125,140.
Additional Rate
The final and additional rate is applied at 45% if you earn over £125,140.
What Income Counts Towards the 40% Bracket?
Since you understand what is the 40% tax bracket, it is essential to know that almost all taxable income sources count towards the total, including:
- Employment Earnings: Your salary, bonuses, and commission.
- Self-Employment Profits: Earnings from running your own business.
- Rental Income: Income from property investments.
- Savings Interest: Interest above your Personal Savings Allowance.
- Dividends: Dividends above the Dividend Allowance.
- Pensions: Taxable income from pensions.
What Other Tax Allowances and Deductions am I Eligible For?
Understanding what is the 40% tax bracket helps us know that, as a higher-rate taxpayer, you are eligible for the following key allowances and deductions:
Pension Contributions
As a 40% taxpayer, you can claim an additional 20% tax relief on personal pension contributions, making them highly tax-efficient.
Gift Aid Donations
You can claim back the difference between the higher rate (40%) and the basic rate (20%) on charitable donations.
Marriage Allowance
This allows you to transfer £1,260 of your spouse’s unused personal allowance to you if they are a basic or non-taxpayer.
Dividend Allowance
£500 of dividend allowance is tax-free.
Trading Allowance
A £1,000 tax exemption for casual income.
What are Some Tax-Efficient Ways to Pay Myself?
Once you understand what is the 40% tax bracket, you should also know that there are some tax-efficient ways to pay yourself.
- Set a salary below the £12,570 National Insurance threshold, which is tax-deductible for the company.
- Take advantage of any available tax-free dividend allowances.
- Make employer pension contributions, which are not generally tax-deductible for the company and are not subject to Personal income tax or NICs.
- Ensure all valid business expenses, such as equipment, travel and training, are claimed to reduce company profit and Corporation Tax.
- If your spouse or partner is a shareholder, pay them dividends if they are in a lower tax bracket.
What Services do Accountants Offer for the 40% Tax Bill?
After understanding what is the 40% tax bracket, it becomes clear how accountants can help minimise higher-rate tax liability through strategic planning.
Pension Contribution Optimisation
Maximising contributions to reduce taxable income.
Salary Sacrifice Schemes
Arranging for salary to be exchanged for non-cash benefits to stay below the threshold.
Asset Transfer
Transferring income-generating assets to a spouse or civil partner in a lower tax bracket.
Claiming Allowances
Ensuring all eligible deductions, such as professional subscriptions, working-from-home relief and Gift Aid donations are claimed.
Tax Efficiency Planning
Utilising ISAs and other tax-efficient vehicles for investments.
Making Tax Digital (MTD) Compliance
As of April 2026, individuals with qualifying income over £50,000 must comply with MTD requirements.
What are the Common Mistakes of 40% Tax Bracket?
After learning about what is the 40% tax bracket, here are some of the common mistakes:
Missing Pension Opportunities
Higher-rate taxpayers can claim an extra 20% tax relief on pension contributions.
Not Claiming Work Expenses
Failure to claim for allowable expenses (e.g., uniforms, professional subscriptions) means paying more tax than necessary.
Ignoring the Personal Allowance Taper
For incomes over £100,000, the personal allowance decreases by £1 for every £2 earned, creating an effective 60% tax rate.
Paying Emergency Tax on Bonuses
Bonuses can trigger emergency tax codes (e.g., 1257L W1/M1), causing temporary overpayment.
Incorrect Tax Codes for Multiple Jobs
Not monitoring tax codes (BR or D0) on second jobs can lead to improper tax application.
Overtaxed Redundancy Payments
Redundancy payments above £30,000 are taxable; errors often occur in how the first £30,000 (tax-free) is processed.
Bottom Line
So, what is the 40% tax bracket? It is a higher-rate income tax band that applies to your earnings above the basic rate threshold. Understanding what is the 40% tax bracket can help you manage tax planning and assess the impact of pay increases.
Having the right knowledge can help you make financial decisions and ensure you pay the correct amount of tax under UK rules.
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Disclaimer: This article intends to provide general information on what is the 40% tax bracket in the UK.
