How Additional Rate Tax Affects High Earners
At the 45% additional rate, nearly half of every pound earned above £125,140 goes to income tax alone. With NI at 2%, the combined marginal rate is 47%. On a £200,000 salary, approximately £74,870 goes to income tax and £3,794 to NI.
The additional rate threshold was reduced from £150,000 to £125,140 in April 2023, bringing more high earners into this band. The threshold aligns with the point where the personal allowance taper is fully exhausted.
At this income level, maximising tax-efficient structures is critical. Consider pension salary sacrifice (saves 47% marginal), ISA allowances (tax-free growth), and whether incorporation through a limited company might be more efficient. See our dividend tax calculator.
How Additional Rate Tax Works in Practice
The additional rate of 45% applies to taxable income above £125,140 (reduced from £150,000 in April 2023). Combined with 2% National Insurance, the marginal rate is 47%. Only approximately 1% of UK taxpayers pay the additional rate, but they contribute a significant share of total income tax revenue.
Practical Tips
Additional-rate taxpayers have no Personal Allowance (it has been fully tapered away). Every pound earned is taxable. The Annual Allowance for pension contributions (£60,000) becomes a key planning tool, though very high earners (adjusted income above £260,000) face a tapered Annual Allowance that reduces to £10,000. Carry forward of unused Annual Allowance from the previous three years can allow larger one-off contributions.
Related Topics
The effective marginal rate is actually higher (60%) in the £100,000-£125,140 range due to the Personal Allowance taper. Above £125,140, the rate drops to 47%. This quirk means some additional-rate taxpayers have a lower marginal rate than those just above £100,000. See Personal Allowance taper.
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