The 40% tax bracket: when you pay it and how to plan around it (UK 2026/27)

What is the 40% tax bracket?

For taxpayers in England, Wales and Northern Ireland, the 40% bracket is the higher rate of income tax. In the 2026/27 tax year, it applies to income above £50,270. Below that, you pay 20% (the basic rate). Above £125,140, the rate steps up again to 45%.

The most important thing to know: you only pay 40% on the portion of your income above £50,270, not on your whole salary. A lot of people assume crossing the threshold means everything they earn is taxed at 40%. It does not work that way.

When does 40% tax start?

For 2026/27, the higher rate threshold sits at £50,270of taxable income. This figure is the personal allowance (£12,570) plus the full basic rate band (£37,700). If you have the standard tax code 1257L and your only income is salary, you cross into 40% at exactly that gross salary.

The threshold has been frozen at £50,270 since the 2021/22 tax year and is currently legislated to stay there through 5 April 2031. Because wages have continued to rise while the threshold has not, more people cross into the higher band each year. This is sometimes called fiscal drag.

UK income tax bands for 2026/27 (England, Wales and Northern Ireland)

These are the bands for someone with the standard Personal Allowance of £12,570.

The same bands applied in 2025/26. Your Personal Allowance falls by £1 for every £2 of adjusted net income above £100,000 and is zero at £125,140, so income above that point has no allowance. Scottish taxpayers use different bands, covered below.

A worked example: salary of £60,000

Say your taxable income is £60,000 for the year. Tax is calculated band by band:

Your average tax rate on £60,000 is about 19%, even though your marginal rate is 40%. The marginal rate is what matters when you are thinking about extra income (a bonus, a salary rise, a side hustle), because it tells you what HMRC will take from each additional pound.

National Insurance is calculated separately and adds to this. You can see both side by side using our salary calculator.

How much extra tax do you pay in the 40% band?

Here is what crossing into the higher rate band actually costs at different salary levels, compared to staying just below it:

Notice the average effective rate stays well below 40% even on a £100,000 salary, because the first £50,270 is taxed at lower rates. Crossing the threshold is not a cliff. It is just the rate that applies to the next pound.

The £100,000 trap

There is one part of the tax system that does behave like a cliff, though, and it is worth knowing about: the £100,000 to £125,140 band.

Once your adjusted net income passes £100,000, your personal allowance starts to taper away at the rate of £1 lost for every £2 earned above. By the time you reach £125,140 of income, the allowance has gone entirely.

The effect is that income in this £25,140 band is taxed at an effective marginal rate of 60%. You pay 40% on the income itself, and you also lose 40% on the allowance that is disappearing. The arithmetic:

• £1 of extra income above £100,000 is taxed at 40% = £0.40 of tax
• That £1 of income also costs you £0.50 of personal allowance
• £0.50 of lost allowance means £0.50 of income that was previously tax-free is now taxed at 40% = £0.20 of extra tax
• Total tax on the extra £1: £0.60 (60%)

If you are anywhere near £100,000, pension contributions are usually the cleanest way to bring your adjusted net income back below the threshold. We cover the planning options in the next section.

For a full walk-through, see our guide to the £100,000 60% tax trap.

Four ways to plan around the 40% bracket

1. Pension contributions

Money paid into a registered pension scheme comes out of your taxable income before the higher rate kicks in. A £10,000 personal pension contribution by a higher rate taxpayer typically gets:

• £2,500 of basic rate relief added directly into the pension by HMRC
• A further £2,500 reclaimed through Self Assessment

So £10,000 in your pension costs you £7,500 of post-tax cash, and the government tops it up to £12,500 in the pension pot. Pension contributions also reduce your adjusted net income for the purpose of the £100,000 taper, which is where they really earn their keep for people near the trap.

2. Salary sacrifice

If your employer runs a salary sacrifice scheme, you give up a portion of your gross salary in exchange for a non-cash benefit such as an additional pension contribution, a cycle-to-work bike, or an electric company car. The sacrificed amount never enters your taxable income, so you avoid both income tax and NI on it.

For a higher rate taxpayer, salary sacrifice on £5,000 of pension contribution saves £2,000 of income tax and around £100 of employee NI, with the full £5,000 still ending up in the pension pot.

3. Charitable giving (Gift Aid)

When you donate to a UK charity through Gift Aid, the charity reclaims 25p of basic rate tax for every £1 you give. If you are a higher rate taxpayer, you can also claim back the difference between basic and higher rate yourself, through Self Assessment.

A £1,000 Gift Aid donation effectively costs a 40% taxpayer £750 after the relief is claimed. Same effect on adjusted net income as a pension contribution.

4. Limited company structure (for self-employed)

If you run your own business as a sole trader, switching to a limited company changes the tax mechanics. You become an employee of your company (paid a small salary up to the personal allowance) plus a shareholder who receives dividends. The tax rates on dividends are lower than the equivalent income tax rates, particularly in the higher band.

This is not a universal win and there are extra obligations (annual accounts, corporation tax, Companies House filings). It can make sense at higher profits, particularly with spouse share splitting or profit retention. We can run the comparison for you.

What counts as taxable income?

The 40% band applies to all your taxable income added together. The most common sources:

• Salary and bonuses from employment
• Self-employment profits
• Rental income from property (after allowable expenses)
• Pension income
• Interest from savings above the personal savings allowance
• Dividends above the £500 dividend allowance (but taxed at dividend rates, not 40%). See dividend tax rates for 2026/27.
• Some state benefits (Carer's Allowance, State Pension, contribution-based JSA)

A few common types of income are NOT counted: ISA returns, Premium Bond prizes, the first £1,000 of trading income, and the first £7,500 of rent-a-room income.

The 40% bracket and Scotland

Scotland sets its own income tax bands. For Scottish taxpayers in 2026/27, the higher rate is 42% and applies to taxable income from £31,093 to £62,430. The Advanced rate is 45% from £62,431 to £125,140, and the Top rate is 48% above £125,140. These are taxable-income bands after the Personal Allowance, not the England, Wales and Northern Ireland thresholds used elsewhere in this guide.

National Insurance, the personal allowance, and the £100,000 taper are the same as the rest of the UK.

Things people get wrong

• "I'm in the 40% bracket so I lose 40% of my pay." You pay 40% only on the portion above £50,270. Most of your income is still taxed at lower rates.
• "A pay rise might cost me money if it pushes me into 40%." It cannot. You only pay 40% on the income above the threshold. A £1,000 pay rise that pushes you £1,000 over £50,270 costs you £400 in tax and keeps £600. You are still up.
• "Bonuses are taxed differently." Bonuses are part of taxable employment income. The rate depends on the total taxable income and PAYE information for the individual.
• "I should keep my salary below £50,270 to avoid 40%." There is no advantage to this if you would earn more. Every pound between £50,270 and £100,000 leaves you with £0.60 after tax, which is still a gain. The only situation where capping makes sense is between £100,000 and £125,140, and only then if you have alternative places to put the income (like a pension).

Official source

GOV.UK: Income Tax rates and Personal Allowances