If you’ve ever heard the term ‘40% tax bracket’ but aren’t entirely sure how it affects your income, this guide will help you make sense of it.

Understanding the UK Tax System

In the UK, income tax is charged based on your yearly earnings, and your income is split into bands, each taxed at a different rate. For the 2025/26 tax year, most people won’t pay any tax on their first £12,570 of income. This is known as your Personal Allowance. Earnings between £12,571 and £50,270 are taxed at 20%, while income over £50,270 and up to £125,140 is taxed at 40%. Anything above £125,140 is taxed at 45%. It’s important to know that your Personal Allowance reduces if your income is over £100,000, disappearing completely if you earn £125,140 or more. Scotland has separate rates for non-savings and non-dividend income, so thresholds there may be different.

Who Pays the 40% Rate?

The higher rate, or 40% tax bracket, applies only to the portion of your income over £50,270. For example, if you earn £60,000, only £9,730 is taxed at 40%, not your entire salary. Business accountants Birmingham like the examples seen at https://www.hazlewoods.co.uk/expertise/business-accountants/birmingham/ can help you plan your tax affairs.

Why It’s Not as Scary as It Sounds

Understanding that the 40% rate is a marginal tax rate can make it less daunting. While the figure looks high, only a slice of your income is taxed at this rate. Knowing how tax works can help you plan better and feel more confident about your finances.