What's the Higher Rate Tax Threshold in 2025/26?

The Higher Rate Threshold in 2025/26

Income above £50,270 (and below £125,140) is taxed at 40%. This applies to employment income, self-employment profit, rental income, savings interest above the PSA, and dividends above the dividend allowance.

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Why the Threshold Hasn't Moved Since 2021

The higher rate threshold was frozen in the 2021 Spring Budget alongside the Personal Allowance, as part of the government's plan to raise revenue without a headline tax rate increase. Since then, pay rises have pushed millions of workers past the £50,270 line:

The freeze is scheduled to lift in 2028/29, when thresholds will likely be indexed to CPI again.

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What Happens When You Cross £50,270

For every £1 of income above £50,270:

• Income tax: 40p (higher rate)
• Employee NI: 2p (reduced rate above the Upper Earnings Limit)
• Total taken: 42p in the pound

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The Child Benefit Complication

If you or your partner claims Child Benefit and your adjusted net income is above £60,000, the High Income Child Benefit Tax Charge (HICBC) kicks in:

For someone earning £70,000 with two children (Child Benefit ~£2,212/year), the effective marginal rate on income between £60,000 and £80,000 is approximately 53%: 40% IT + 2% NI + ~11% CB clawback.

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Scotland: A Lower Higher Rate Threshold

Scottish taxpayers pay the Scottish Rate of Income Tax (SRIT) on non-savings income:

A Scottish nurse earning £48,000 pays 42% on income above £43,662, while an equivalent earner in England pays 20%. The total tax bill difference at £48,000 is roughly £500–600/year more in Scotland.

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How to Avoid or Reduce 40% Tax

1. Salary sacrifice pension contributions

Sacrifice salary before tax is applied. A £5,000 sacrifice reduces your gross pay from £55,000 to £50,000 — keeping you below the 40% threshold. You pay 0% on the sacrificed portion (instead of 40% IT + 2% NI = 42%). The pension pot gets the full £5,000.

2. Personal pension contributions (SIPP)

Even without employer salary sacrifice, contributing to a personal pension extends the basic rate band. For Gift Aid and personal pension contributions, HMRC adds the gross value to your basic rate band limit:

• Earning £55,000, pay £4,730 net into a SIPP → HMRC adds basic rate relief: gross contribution = £5,912
• Your effective higher rate threshold rises to £50,270 + £5,912 = £56,182
• The £4,730 income above £50,270 that was previously taxed at 40% is now taxed at 20%
• Saving: £4,730 × 20% = £946/year

Higher rate taxpayers must claim the extra 20% relief via Self Assessment — it isn't applied automatically.

3. Gift Aid donations

Every £1 donated under Gift Aid costs you 80p. HMRC collects the other 20p directly from the charity. As a higher rate taxpayer, you can claim back a further 20p via Self Assessment. Net cost: 60p per £1 donated — plus the basic rate band extension reduces your 40% tax.

4. Spousal income transfer

If your spouse earns below the basic rate band, transferring income-generating assets (e.g., shares, rental property with rental income) to them means investment income is taxed at their lower rate rather than your 40%.

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Extending the Basic Rate Band (How It Works in Practice)

HMRC extends the basic rate band by the gross amount of pension contributions and Gift Aid:

Example: Salary £56,000, no pension contribution

• Basic rate on £37,700 = £7,540
• Higher rate on £56,000 − £50,270 = £5,730 → £2,292
• Total IT: £9,832

With £6,000 SIPP contribution (net £4,800):

• Gross contribution = £6,000 (basic rate relief added automatically)
• Extended higher rate threshold: £50,270 + £6,000 = £56,270
• All income now falls within the extended basic rate band
• Total IT: £8,620 — saving £1,212/year