Additional Rate Tax

Understanding the Additional Rate Band

The additional rate of 45% applies to taxable income above £125,140. At this level, you have also lost your entire personal allowance to the taper, so every pound is taxed. Combined with 2% NI, the effective marginal rate is 47%.

Only around 1% of UK taxpayers reach the additional rate band. If you are in this band, professional tax planning is essential. Pension contributions remain the most powerful tool, with £60,000 annual allowance and three years of carry-forward potentially available.

Venture Capital Trusts (30% income tax relief) and Enterprise Investment Schemes (30% relief) offer additional planning opportunities. Consult a qualified tax adviser to optimise your position. See our high earner salary guides.

How Additional Rate Works in Practice

The additional rate of income tax is 45%, applied to taxable income above £125,140 (for 2025/26). This threshold was reduced from £150,000 in April 2023. Only approximately 1% of UK taxpayers pay the additional rate. Combined with 2% NI, the marginal rate on income above £125,140 is 47%.

Practical Tips

If you earn above £125,140, your entire Personal Allowance has been tapered away, meaning you pay tax on every pound earned. Strategic pension contributions can be particularly valuable at this income level, though the Annual Allowance (£60,000 including employer contributions) caps tax-efficient pension saving. Carry forward rules may allow higher contributions using unused allowance from the previous three years.

Related Topics

The effective marginal rate is actually highest between £100,000 and £125,140 (60%) due to the Personal Allowance taper. Above £125,140, the marginal rate drops to 47% (45% tax + 2% NI). See adjusted net income for how pension contributions interact with these thresholds.