What is the 40% Tax Bracket?- 2024

what is 40 % brakcet

As your income grows, you may find yourself edging closer to the 40% tax bracket. What does this mean for your finances? Let’s have a look at what the 40% tax bracket means, how much you can make before hitting it, and what it means for how much tax you’ll pay.

Table of Contents

What is the 40 Tax Bracket?

The 40% tax bracket, also known as the higher rate tax band. It comes into play when you earn over a certain amount. For the 2024/2025 tax year, this amount is set at £50,270. If your income exceeds this threshold, you’ll be taxed at a 40% rate on the extra earnings. Knowing about this bracket helps you plan your finances and understand how much tax you’ll need to pay. It’s important to learn about opportunities like investing in tax-efficient schemes or contributing to your pension to manage your tax bill and keep more of your earnings.

Here’s a breakdown of the income tax rates for the 2024/2025 tax year :

  • Personal Allowance: £0 – £12,570 (Tax Rate: 0%)
  • Basic Rate: £12,571 – £50,270 (Tax Rate: 20%)
  • Additional Rate: £125,140 upwards (Tax Rate: 45%)
  • Higher Rate: £50,271 – £125,140 (Tax Rate: 40%)

It’s important to note that tax rates may differ in Scotland.

How much can I earn before I pay 40% tax?

To get into the 40% tax bracket, your total earnings for the tax year need to be more than the basic rate limit, which puts you in the higher tax bracket. For the tax year 2024/2025, this limit is between £50,271 and £125,140. Income falling within this bracket will be taxed at 40%, while any earnings exceeding £125,140 will be subject to the additional rate of 45%.

Does the 40% Tax Bracket Change?

The limits for the 40% tax band might change based on what the government decides in the yearly budget. But it’s not likely these limits will change soon, because the current tax-free amounts and bands stay the same until 2028. It’s important to keep an eye on what you can get for personal allowances and the current tax rates to handle your money well.

What is Marginal Tax Rate?

The tax rate you pay on each additional pound of income is known as your marginal tax rate. It only applies to the portion of your income that is inside each tax bracket, not your whole income. This method makes sure that taxpayers who earn more money pay more tax on the extra money they make, but it does not mean that they pay more tax on all of their income.

How Marginal Tax Rates Work

Income Division

There are portions of your income that are subject to different tax brackets. There is a precise tax rate associated with each bracket, and you only pay that rate for the portion of your income that falls into that bracket.

Applying Tax Rates

Only the part of your income that is in each bracket is subject to the applicable tax rate. This means that only the portion of your income that rises above the lower bracket’s threshold is subject to the higher rate of the following bracket when your income rises.

Example Calculation

If you earn £60,000 annually:

    • The first £12,570 is not taxed.
    • The next £37,700 (£50,270 – £12,570) is taxed at 20%.
    • The remaining £9,730 (£60,000 – £50,270) is taxed at 40%.

This means only the £9,730 above the £50,270 threshold is taxed at the 40% rate. The rest of your income is taxed at lower rates. This way, the higher rate applies only to the income exceeding the threshold, not to your entire income.

Impact of the 40% Tax Rate

While the prospect of a 40% tax rate may seem daunting, it’s essential to understand its impact on your overall finances. Remember, this higher rate tax applies only to the portion of your income that exceeds the threshold. You still benefit from lower tax rates for income up to the threshold.


Additionally, the government provides tax allowances and deductions that can further reduce the amount of income subject to the higher rate, mitigating its impact.


In conclusion, the 40% tax bracket affects individuals whose income surpasses the higher rate threshold. Understanding how it works, how much you can earn before entering it, and its implications for your tax bill is crucial for effective financial planning.

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