Higher Rate Tax
Income Tax charged at 40% on income between £50,271 and £125,140 (2024/25).
Key Points
- ✓40% tax rate on income £50,271-£125,140
- ✓Only about 15% of UK taxpayers pay Higher Rate Tax
- ✓Only income above £50,270 is taxed at 40%
- ✓Pension Contribution receive 40% tax relief
- ✓Scottish Higher Rate Tax is 42%
Detailed Explanation
Higher Rate Tax is the second tier of Income Tax in the UK, charged at 40% on earnings between £50,271 and £125,140 in the 2024/25 tax year.
Only around 15% of UK taxpayers pay Higher Rate Tax. You become a Higher Rate Tax payer when your total taxable income exceeds the Basic Rate Tax threshold of £50,270.
It's important to understand that you only pay 40% on the portion of income above £50,270 - not on all your income. Your first £12,570 is still tax-free (Personal Allowance) and income from £12,571-£50,270 is still taxed at 20% (Basic Rate Tax).
Higher Rate Tax payers can benefit significantly from Pension Contribution, as they receive 40% tax relief. This means a £100 pension contribution only costs £60 after tax relief.
In Scotland, there's an Intermediate Rate of 21% before reaching the Higher Rate Tax of 42%, meaning Scottish Higher Rate Tax payers pay slightly more on income in these bands.
Practical Examples
- •Earning £60,000: You pay 0% on £12,570, 20% on £37,700 (Basic Rate Tax band) = £7,540, then 40% on £9,730 = £3,892. Total Income Tax = £11,432
- •A £1,000 Pension Contribution for a Higher Rate Tax payer costs just £600 net, saving £400 in tax
- •Crossing into Higher Rate Tax by just £1 means only that £1 is taxed at 40% - you don't suddenly pay 40% on everything
Frequently Asked Questions
Related Terms
Basic Rate Tax
Income Tax charged at 20% on income between £12,571 and £50,270 (2024/25).
Additional Rate Tax
The highest Income Tax band in the UK, charged at 45% (47% in Scotland) on income over £125,140.
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.
Income Tax
A progressive tax on your earnings, charged at 20%, 40%, or 45% depending on your income level (after personal allowance).
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.