40% Tax Bracket UK: How It Works and How Much You Need to Earn

Many people worry about hitting the 40% tax bracket in the UK, but few fully understand what it actually means. Are you taxed 40% on your whole income? Absolutely not. Let's clear up the confusion—and help you save money in the process.

At Skyrock Accountants in Maidstone, we help professionals and small business owners understand and manage their tax liabilities efficiently. Here’s what you need to know.

• How the 40% Tax Bracket Works

• Example of the 40% Tax in Action

• What Counts as Income?

• How to Reduce Your 40% Tax Bill

• Get Expert Help from Skyrock

How the 40% Tax Bracket Works

The UK uses a tiered tax system. For 2024/25, here are the key tax bands:

So, you only pay 40% tax on the portion of income that exceeds £50,270. Not your full salary!

Example: How the 40% Tax Bracket Affects You

Imagine your annual income is £60,000. Here’s the breakdown:

• First £12,570 – tax-free (Personal Allowance)

• Next £37,700 – taxed at 20%

• Remaining £9,730 – taxed at 40%

You’re only paying 40% tax on that £9,730 portion—not your full salary.

What Counts as Income for the 40% Tax Bracket?

It’s not just salary that pushes you into the higher rate band. These income types also count:

• Self-employment profits

• Rental income

• Dividends and investments

• Pensions

• Bonuses and benefits in kind (like company cars)

Can You Reduce Your 40% Tax Liability?

Yes—there are legitimate ways to reduce your higher-rate tax burden, including:

• Making pension contributions

• Using salary sacrifice (e.g. for electric vehicles)

• Claiming business expenses (if self-employed)

• Donating to charity

• Transferring unused allowances (in some cases)

These tactics can lower your taxable income and move some of it out of the 40% band.

Get Expert Help from Skyrock Accountants

Understanding and managing the 40% tax bracket in the UK can save you thousands each year. At Skyrock Accountants in Maidstone, we provide tailored tax advice and planning to professionals, business owners, and landlords.

👉 Ready to stop overpaying tax? Contact Skyrock Accountants today for a free consultation and take control of your finances.