Additional Rate Tax
The highest Income Tax band in the UK, charged at 45% (47% in Scotland) on income over £125,140.
Key Points
- ✓Applies to income over £125,140 in 2024/25
- ✓Rate is 45% in England/Wales/NI, 47% in Scotland
- ✓Personal allowance completely withdrawn at this level
- ✓60% effective rate between £100k-£125k due to allowance tapering
- ✓Pension contributions provide 45-47% tax relief
Detailed Explanation
Additional Rate Tax is the highest Income Tax band in the UK tax system. For the 2024/25 tax year, it applies to annual income over £125,140. This rate represents the top tier of progressive taxation in the UK.
In England, Wales, and Northern Ireland, the additional rate is 45%. In Scotland, the top rate is 47% due to Scotland's separate tax system and devolved powers over income tax rates.
At this income level, your personal allowance is completely tapered away (reduced by £1 for every £2 earned over £100,000), meaning all income is subject to tax without any tax-free allowance.
This creates an effective marginal rate of 60% on income between £100,000-£125,140 due to personal allowance withdrawal, making this the highest effective tax rate in the UK system.
High earners should consider tax-efficient strategies such as pension contributions (which receive tax relief at your marginal rate), charitable Gift Aid donations, or salary sacrifice arrangements to reduce taxable income.
Practical Examples
- •If you earn £150,000 in England, you'll pay 45% tax on £24,860 (£150,000 - £125,140) = £11,187 at the additional rate, plus higher and basic rate tax on lower income bands
- •A Scottish taxpayer earning the same £150,000 would pay 47% on that portion = £11,684, demonstrating the £497 difference due to Scotland's higher top rate
- •For someone earning £110,000, the effective marginal rate is 60% on the £10,000 between £100k-£110k due to personal allowance tapering, meaning £6,000 goes to tax
- •Making a £20,000 pension contribution when earning £150,000 brings taxable income to £130,000, saving £9,000 in tax (45% relief) while building retirement savings
Frequently Asked Questions
Related Terms
Higher Rate Tax
Income Tax charged at 40% on income between £50,271 and £125,140 (2024/25).
Personal Allowance
The amount of income you can earn tax-free each year (£12,570 for 2024/25), reduced if you earn over £100,000.
Marginal Rate
The rate of tax you pay on your next pound of income, which can be higher than your effective rate due to allowance withdrawal.
Income Tax
A progressive tax on your earnings, charged at 20%, 40%, or 45% depending on your income level (after personal allowance).
Tax Code
A code used by employers to calculate how much tax to deduct from your pay, usually starting with a number (e.g., 1257L).
Pension Contribution
Money paid into your pension pot, receiving tax relief at your marginal rate (20%, 40%, or 45%), up to the annual allowance.
Salary Sacrifice
An arrangement where you give up part of your salary in exchange for a non-cash benefit (e.g., extra pension), saving tax and NI.
Scottish Income Tax
Separate Income Tax rates and bands for Scottish taxpayers, with 5 bands and a top rate of 47% vs 45% in rest of UK.