40% Tax Threshold: When Higher-Rate Tax Starts in the UK

Ask a colleague what happens when their salary crosses £50,000 and a common answer is that they will suddenly pay 40% tax on everything. That is not how UK income tax works, and the misunderstanding costs people real money in bad decisions — turning down overtime, refusing a promotion, or assuming a pay rise leaves them worse off. None of those fears survives contact with the actual bands.

The UK taxes income in slices. Each slice has its own rate, and crossing into a new band changes the rate only on the slice above the line. This guide sets out the 2026/27 bands, works through the maths on two salaries, and explains the two traps that sit near the threshold: fiscal drag and the 60% effective rate.

Where the 40% tax threshold sits

For 2026/27, in England, Wales and Northern Ireland, the bands are: 0% on the first £12,570 (the personal allowance), 20% on income from £12,571 to £50,270 (the basic rate), 40% on income from £50,271 to £125,140 (the higher rate), and 45% above £125,140 (the additional rate). The figure people call the 40% tax threshold is the £50,270 boundary between the basic and higher bands.

That £50,270 is not a number chosen at random. It is the personal allowance of £12,570 plus the basic-rate band of £37,700. Your income fills the allowance first, then the basic-rate band, and only the part that spills over the top is taxed at 40%. If your employer adjusts your pay or your pension contributions change your taxable income, it is that spilling slice that moves.

Worked examples: £55,000 and £60,000

Take a salary of £55,000 with the standard personal allowance and no other adjustments. The first £12,570 is tax-free. The next £37,700 is taxed at 20%, giving £7,540. The remaining £4,730 sits above the threshold and is taxed at 40%, giving £1,892. Total income tax: £9,432. The effective rate on the whole salary is about 17%, not 40% — because most of the salary never reaches the higher band.

On £60,000 the same method gives £7,540 at the basic rate plus 40% of £9,730, which is £3,892, for a total of £11,432. A rise from £55,000 to £60,000 costs exactly £2,000 in extra tax: 40% of the rise.

Why a pay rise never leaves you worse off

Because tax is marginal, earning more always leaves you with more after tax. Every extra pound above the threshold keeps 60p after income tax (before National Insurance), and every extra pound below it keeps 80p. There is no cliff edge at £50,270 where take-home pay falls.

The same logic applies to pension contributions and salary sacrifice. A contribution that pulls your taxable income back below the threshold saves tax at 40% on that slice, which is why pension contributions are especially valuable for higher-rate taxpayers. Run the numbers on your own pay with our UK salary calculator to see exactly how each band applies to your salary.

Fiscal drag: why more people cross the threshold every year

The personal allowance and the higher-rate threshold have been frozen since April 2021, and current plans keep them frozen well into the next decade. Meanwhile wages rise with inflation. The result, known as fiscal drag, is that each year more workers are pulled into the higher-rate band without any change in the tax rules and without feeling richer in real terms. HMRC’s own statistics show the number of higher-rate taxpayers climbing steadily for exactly this reason.

Fiscal drag also means the threshold does different work depending on when you last checked it. A salary that sat comfortably inside the basic band a few years ago may now straddle the threshold. Reviewing your band position once a year, rather than assuming last year’s position still holds, is a five-minute habit worth keeping.

The 60% trap between £100,000 and £125,140

One more threshold sits inside the higher band and deserves its own warning. Once adjusted net income passes £100,000, the personal allowance tapers away by £1 for every £2 of income above that level, disappearing entirely at £125,140. Inside that window each extra £100 of income is taxed at 40% and also drags £50 of allowance into tax at 40%, producing an effective marginal rate of 60%.

This is the single most valuable band for pension contributions and Gift Aid, because a contribution that restores allowance saves tax at that 60% effective rate. It is also the band where salary-sacrifice arrangements and the timing of bonuses repay the closest attention. Above £125,140 the picture simplifies again: no allowance remains, and the additional rate of 45% applies to everything above the line.

Scotland is different

Everything above applies to England, Wales and Northern Ireland. Scotland sets its own income tax bands for non-savings, non-dividend income, with a higher rate of 42% starting at £43,663 for 2026/27 and further rates above that. If you live in Scotland, your threshold, your rates and your planning all differ — check the Scottish bands rather than applying the £50,270 figure. The personal allowance itself, £12,570, is set UK-wide and applies everywhere.

This article is general information only, not financial advice.