Understanding the 40% Tax Bracket in 2025

 

The 40 tax bracket 2025 is part of the UK’s progressive income tax system, applying to higher earners whose taxable income exceeds a certain threshold. Understanding how this bracket works can help you plan your finances, reduce unnecessary liabilities, and make better use of available allowances.

Thresholds for 2025 (England, Wales & Northern Ireland)

For the 2025/26 tax year, the 40% tax bracket is expected to apply to income between:

  • £50,271 and £125,140 – taxed at 40% (Higher Rate)

  • Over £125,140 – taxed at 45% (Additional Rate)

The lower thresholds are the same as in recent years unless the government announces changes in the annual Budget.

How the 40% Tax Works

Being in the 40% tax bracket 2025 does not mean all your income is taxed at 40%. Only the portion above the higher-rate threshold is taxed at that rate.

Example Calculation:
If your taxable income in 2025 is £70,000:

  • First £12,570 – Tax-free Personal Allowance

  • Next £37,700 – Taxed at 20% (Basic Rate)

  • Remaining £19,730 – Taxed at 40% (Higher Rate)

Ways to Reduce Your 40% Tax Liability

If you fall into the 40% tax bracket 2025, you can reduce your taxable income through:

  • Pension Contributions – Receive relief at your highest rate.

  • Gift Aid Donations – Support charities while lowering taxable income.

  • Salary Sacrifice Schemes – Exchange salary for benefits like childcare or cycle-to-work.

  • ISA Investments – Keep savings and investment returns tax-free.

Special Note for Scotland

Scotland has different tax bands and rates, so the 40% tax bracket 2025 as described here applies to England, Wales, and Northern Ireland only.

Conclusion

The 40% tax bracket 2025 affects many higher earners, but careful planning can minimise its impact. Understanding how the thresholds work and using available allowances ensures you keep more of your income while remaining compliant with HMRC rules.

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