Higher Rate Tax

The Impact of Crossing the Higher Rate Threshold

The higher rate of income tax is 40% and applies to taxable income between £50,271 and £125,140. Combined with 2% NI above the upper earnings limit, the effective marginal rate is 42% in this band.

Crossing into the higher rate is a significant tax milestone. On the portion of income above £50,270, you keep only 58p per pound compared to 72p in the basic rate band. This makes tax planning tools like salary sacrifice pensions much more valuable, as each pound contributed saves 42% in tax and NI.

Higher rate taxpayers can also claim additional pension tax relief on personal contributions (not salary sacrifice) through self-assessment. Read our guide to becoming a higher rate taxpayer.

How Higher Rate Works in Practice

The higher rate of income tax is 40%, applied to taxable income between £50,271 and £125,140 (for 2025/26). You only pay 40% on the portion above £50,270, not your entire salary. Approximately 15% of UK taxpayers are higher-rate taxpayers. The threshold has been frozen since 2021, pulling more workers into this band through fiscal drag.

Practical Tips

If you earn £55,000, only £4,730 (the amount above £50,270) is taxed at 40%. Your effective tax rate is much lower than 40%. However, at this level, pension salary sacrifice becomes very tax-efficient — contributing above the threshold saves you 40% income tax plus 2% NI, meaning a £100 pension contribution costs only £58 in take home pay. See salary sacrifice calculator.

Related Topics

The number of higher-rate taxpayers has increased significantly due to the frozen threshold. In 2021, approximately 4.2 million people paid higher-rate tax; by 2025, this has risen to over 6 million. See additional rate for the next band.