What Is the 40% Tax Bracket? UK Higher Rate Explained (2026/27)
Crossing into the 40% tax bracket is a milestone many people hit without quite realising it — often through a pay rise, a bonus, or growing dividend income, rather than a deliberate decision. This guide from Filing Accounts UK explains exactly what the 40% higher rate band is, who it affects, and the planning points worth knowing, using only verified facts from official HMRC and Budget 2025 sources.
At Filing Accounts, we help individuals and company directors plan around the higher rate threshold. For the full breakdown of every UK tax band, allowance, and rate, see our complete UK tax rates guide.
What Is the 40% Tax Bracket?
The 40% tax bracket — officially the higher rate band — applies to taxable income in England, Wales, and Northern Ireland between £50,271 and £125,140 for the 2026/27 tax year. It is not a flat 40% on your whole income. UK income tax is progressive: only the portion of income that falls within this band is taxed at 40%. Income below £12,570 (your personal allowance) is tax-free, the next slice up to £50,270 is taxed at 20%, and only the amount above £50,270 is taxed at 40%.
Example: if your taxable income is £60,000, you don’t pay 40% on all of it — you pay 0% on the first £12,570, 20% on the next £37,700, and 40% only on the remaining £9,730 (£3,892 of tax at that rate).
Higher Rate Threshold for 2026/27
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
These thresholds have been frozen since April 2021 and are due to remain frozen until at least April 2031. Because wages typically rise with inflation while the threshold doesn’t move, more people are pulled into the 40% band each year without an actual increase in real income — a well-documented effect known as fiscal drag.
Scotland uses a different system with its own bands and a 42% “higher rate” starting at a lower income level than the rest of the UK — see our full UK tax rates guide for the Scottish bands.
The 60% Trap: £100,000 to £125,140
One of the most important — and most overlooked — features of the higher rate band isn’t the 40% rate itself, but what happens just above £100,000. Your £12,570 personal allowance tapers away once your adjusted net income exceeds £100,000, reducing by £1 for every £2 over that threshold, until it disappears entirely at £125,140.
Because you’re paying 40% tax on the extra income and simultaneously losing tax-free allowance, the combined effect creates an effective marginal rate of 60% on income between £100,000 and £125,140 — higher than the official 45% additional rate that applies above £125,140. This is one of the most common tax planning points for anyone with income in this range.
Example: earning £110,000 means your personal allowance is reduced by £5,000 (half of the £10,000 excess over £100,000), leaving only £7,570 tax-free instead of the usual £12,570.
A pension contribution or Gift Aid donation that reduces your adjusted net income back below £100,000 can restore the full personal allowance — making this one of the most effective ways to manage the trap.
How the 40% Bracket Affects Dividends
If you’re a company director taking dividends, crossing into the higher rate band has a direct knock-on effect on your dividend tax rate. For 2026/27:
| Your Income Tax Band | Dividend Tax Rate (above £500 allowance) |
|---|---|
| Basic rate | 10.75% |
| Higher rate (40%) | 35.75% |
| Additional rate | 39.35% |
The basic and higher dividend rates both increased by 2 percentage points from 6 April 2026 (from 8.75% and 33.75% respectively), following the Autumn Budget 2025. Dividends are taxed after your other income has used up the lower bands — so if your salary already fills your basic rate band, any dividends on top are taxed at the higher 35.75% rate, even if the dividend amount itself is modest.
Example: a director with a £40,000 salary and £15,000 in dividends has total income of £55,000, placing them in the higher-rate band. The first £500 of dividends is tax-free; £9,770 falls in the basic-rate band at 10.75%; the remaining £4,730 is taxed at the higher 35.75% rate.
Common Ways to Manage the 40% Bracket
- Pension contributions — reduce your adjusted net income and attract tax relief at your highest marginal rate, including relief on income taxed at 40% or the 60% trap rate
- Gift Aid donations — also reduce adjusted net income for the purposes of the personal allowance taper
- Salary sacrifice schemes — can lower taxable income before it reaches the higher rate threshold
- Marriage Allowance — only available where one partner is a basic-rate (or non-) taxpayer, so it stops applying once you enter the higher rate band
- Timing bonuses or dividends — deferring income near a tax year end can sometimes keep you under a threshold, though this needs care and should reflect genuine cash flow needs, not just tax avoidance
Other Allowances That Shrink in the Higher Rate Band
Several allowances are reduced once you’re a higher-rate taxpayer, not just your headline tax rate:
- Personal Savings Allowance: £500 for higher-rate taxpayers, compared to £1,000 for basic-rate taxpayers
- Capital Gains Tax: higher-rate taxpayers pay 24% on residential property gains and 20% on most other assets, versus 18% and 10% respectively for basic-rate taxpayers, after the £3,000 annual exempt amount
- Child Benefit: the High Income Child Benefit Charge starts clawing back Child Benefit once household income reaches £60,000, fully removed by £80,000
Common Mistakes to Avoid
Assuming All Your Income Is Taxed at 40%
Only the portion of income above £50,270 is taxed at 40% — the bands below it are still taxed at 0% and 20% as normal.
Not Realising the £100k–£125,140 Band Is Worse Than 40%
The personal allowance taper creates an effective 60% marginal rate here, higher than both the 40% and 45% headline rates — this is often the most valuable planning opportunity for higher earners.
Forgetting Dividends Are Taxed on Top of Other Income
Dividends sit at the top of your income stack for tax purposes — if your salary already fills the basic rate band, dividends on top are taxed at the higher dividend rate even if modest in size.
Frequently Asked Questions
At what income does the 40% tax bracket start?
£50,271 for 2026/27 in England, Wales, and Northern Ireland. Scotland has different, lower thresholds.
Do I pay 40% on my entire income once I cross the threshold?
No. UK income tax is progressive — only the portion of income above £50,270 is taxed at 40%.
Why is the effective tax rate between £100,000 and £125,140 actually 60%?
Because your personal allowance tapers away in this band at the same time as 40% tax applies, the combined effect is an effective marginal rate of 60%.
What’s the dividend tax rate for higher-rate taxpayers?
35.75% for 2026/27, above the £500 dividend allowance — up from 33.75% before 6 April 2026.
Can pension contributions help avoid the 40% bracket?
Pension contributions reduce your adjusted net income, which can bring you out of the higher rate band or out of the personal allowance taper zone, while also attracting tax relief.
Planning Around the Higher Rate? Talk to Filing Accounts UK
Whether you’re approaching the 40% threshold for the first time or navigating the £100k–£125,140 trap, small adjustments can make a meaningful difference to your tax bill. At Filing Accounts, we help individuals and company directors plan salary, dividends, and pension contributions around the higher rate band.
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