As of the 2025–26 tax year, millions of UK taxpayers are falling into the 40 tax bracket 2025 , also known as the higher-rate income tax band. This tax rate affects middle- to high-income earners and plays a critical role in personal finance, investment decisions, and pension planning.
Here’s what you need to know about the 40% tax bracket in 2025—including who it applies to, how it works, and ways to manage its impact.
📊 2025–26 UK Income Tax Bands (England, Wales, Northern Ireland)
BandTaxable IncomeRatePersonal AllowanceUp to £12,5700%Basic Rate£12,571 to £50,27020%Higher Rate£50,271 to £125,14040%Additional RateOver £125,14045%
✅ Note: The thresholds have been frozen until 2028, meaning more people will be pulled into the higher band due to rising wages and inflation—a phenomenon known as fiscal drag.
💡 Key Facts About the 40% Tax Bracket
- You only pay 40% on the portion of income above £50,270, not on your entire income.
- The personal allowance (£12,570) is gradually reduced once your income exceeds £100,000—fully lost at £125,140.
- This creates an effective marginal tax rate of 60% for income between £100,000 and £125,140, due to personal allowance withdrawal.
🔍 Example
If you earn £70,000 per year:
- The first £12,570 is tax-free.
- The next £37,700 is taxed at 20%.
- The remaining £19,730 is taxed at 40%.
🧾 What Income is Included?
The 40% tax bracket applies to all taxable income, including:
- Salary and wages
- Self-employment earnings
- Rental income
- Interest and dividends (at different rates)
- Pension income
- Bonuses and commissions
⚙️ Dividend & Savings Tax for Higher-Rate Taxpayers
- Dividends over the £500 allowance are taxed at 33.75%
- Savings interest has a reduced personal savings allowance of £500
🛡️ How to Reduce Exposure to the 40% Band
If your income places you in or near the 40% band, consider the following tax planning strategies:
- Make pension contributions – They reduce your taxable income and can help reinstate your personal allowance.
- Gift Aid donations – Qualifying charity donations extend your basic rate band.
- Salary sacrifice schemes – Exchange part of your salary for benefits like pensions or childcare.
- Income splitting – Spouse transfers or dividends through family-owned companies can be tax-efficient.
- Utilize ISAs – All ISA income is tax-free and does not affect your tax bands.
🧠 Final Thoughts
The 40% tax bracket in 2025 continues to impact an increasing number of UK taxpayers—especially professionals and business owners. With income thresholds frozen until 2028, more people will cross into higher bands unless they take proactive financial steps. By understanding the tax structure and leveraging smart planning strategies, you can reduce your liability and keep more of your earnings.