Understanding the 40% Tax Bracket

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 delve into what the 40% tax bracket entails, how much you can earn before reaching it, and its implications for your tax bill.

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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 2023/2024 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 2023/2024 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 Do I Have to Earn to Enter the 40% Tax Bracket?

To find yourself in the 40% tax bracket, your total income for the tax year must exceed the basic rate threshold, placing you in the higher rate bracket. For the 2023/2024 tax year, this threshold ranges from £50,271 to £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 thresholds for the 40% tax bracket may fluctuate depending on governmental decisions outlined in the annual budget. However, these thresholds are unlikely to change in the near future, as the current personal tax-free allowances and bands are frozen until 2028. Keeping track of your entitlement to personal allowances and current tax rates is crucial to managing your finances effectively.

Understanding Marginal Tax Rates

The 40% tax rate is a marginal tax rate, meaning it applies only to the portion of your income exceeding the higher rate threshold. For example, if you earn £60,000 annually, only the amount over the £50,270 threshold is subject to the 40% tax rate. Income within lower tax brackets is taxed at their respective rates.

Impact of the 40% Tax Bracket

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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