Additional Higher Rate Tax: Thresholds, 60% Trap, and Reliefs

The additional rate of tax in the UK is the top band of income tax, charged at 45% on income above £125,140 for residents of England, Wales, and Northern Ireland. Because the UK uses a marginal system, that 45% only applies to the slice of your earnings above the threshold, not your whole salary. Crossing into this band also removes several allowances that lower earners keep, which is why the real cost of earning at this level is heavier than the headline rate suggests.

Where the Additional Rate Sits in the 2025–26 Bands

Income tax is built in layers. For 2025–26 and 2026–27, the bands for England, Wales, and Northern Ireland are:

Personal Allowance (0%) on the first £12,570
Basic rate (20%) on income from £12,571 to £50,270
Higher rate (40%) on income from £50,271 to £125,140
Additional rate (45%) on income above £125,140

The additional rate threshold dropped from £150,000 to £125,140 from the 2023–24 tax year, pulling more earners into the top band. All of these thresholds are frozen until at least April 2028, so pay rises alone will keep drawing people into higher bands without any change in the law.¹

What You Actually Pay at £150,000

A common misreading is that crossing £125,140 pushes your entire salary onto the 45% rate. It does not. Each pound is taxed only at the rate for the band it falls in.¹

For someone on £150,000, with no Personal Allowance left (it has fully tapered away by this income), the sums work out like this:

First £12,570 at 20% = £2,514
£12,571 to £50,270 at 20% = £7,540
£50,271 to £125,140 at 40% = £29,948
£125,141 to £150,000 at 45% = £11,187

Total income tax comes to £51,189. The effective rate across the whole salary is around 34%, well below the 45% headline. Only the top slice is hit at the additional rate.²

The 60% Trap Just Below the Threshold

The stretch of income between £100,000 and £125,140 carries a hidden cost. Your Personal Allowance of £12,570 is reduced by £1 for every £2 earned above £100,000, and by the time your income reaches £125,140 the allowance is gone entirely.²

The effect on each extra £100 earned in this band is severe. You lose £50 of tax-free allowance, which then gets taxed at 40%, costing you a further £20 on top of the £40 higher-rate tax on the £100 itself. That leaves you with £40 out of every extra £100, an effective marginal rate of 60%. This band, not the 45% band above it, is the single most punishing stretch of the UK income tax system, and it is where pension contributions and Gift Aid can shift the biggest amount of money back into your hands.

Allowances You Lose at This Income Level

Once your income reaches £125,140, the Personal Allowance is nil. Every pound is taxable from the first penny.²

The Personal Savings Allowance also disappears. Basic rate taxpayers get £1,000 of savings interest tax-free and higher rate taxpayers get £500. Additional rate taxpayers get nothing, so every penny of bank interest is taxed at your marginal rate.³

Marriage Allowance is off the table too. A lower-earning spouse can transfer £1,260 of Personal Allowance to a partner, but only if that partner is a basic rate taxpayer. Higher and additional rate earners cannot receive it.⁴

Dividends at 39.35%

Additional rate taxpayers still get the £500 dividend allowance, the same as everyone else. Beyond that, dividends are taxed at 39.35%, compared with 8.75% for basic rate and 33.75% for higher rate earners. If you hold shares outside an ISA, the gap matters. Moving investments into an ISA wrapper removes dividend tax altogether, which is why ISA planning is particularly worth the effort at this income level.²

Capital Gains at 24%

From 6 April 2025, higher and additional rate taxpayers pay 24% on gains from residential property and other chargeable assets. Carried interest gains (relevant to investment fund managers) are taxed at 32%. These rates apply after your annual exempt amount, which is £3,000 for 2025–26.⁵

On a £50,000 gain, tax works out at £11,280 after the exemption. Splitting disposals across tax years to use the annual exempt amount twice is one of the few straightforward planning moves available.

Child Benefit Is Fully Clawed Back

If you or your partner earn over £60,000 and someone in the household claims Child Benefit, the High Income Child Benefit Charge applies. You repay 1% of the benefit for every £200 of income above £60,000, reaching 100% at £80,000. Anyone at the additional rate is well beyond that ceiling, so the entire amount is clawed back through Self Assessment.⁶

Some families stop the payments to avoid the paperwork. Carrying on claiming and repaying the charge can still generate National Insurance credits, which protect the lower-earning parent’s State Pension record.

Pension Contributions: Claim the Extra Relief Yourself

Pensions are the most powerful lever at this income level, and many additional rate taxpayers leave money behind. Under a relief-at-source scheme, your pension provider automatically claims the 20% basic rate. The remaining 25% (the gap between the basic rate and 45%) has to be claimed by you through your Self Assessment return. For every £100 you contribute, the provider adds £25 and you can recover a further £25 through your return.⁷

The standard annual allowance is £60,000 for 2026–27. If your adjusted income exceeds £260,000, the allowance tapers by £1 for every £2 above that level, hitting a floor of £10,000 at £360,000.⁷

Contributions become especially valuable inside the 60% trap. Paying enough into a pension to bring your adjusted net income back below £100,000 restores your full Personal Allowance and delivers 60% effective relief on those contributions rather than the usual 40% or 45%.

Gift Aid Works the Same Way

Charitable donations under Gift Aid follow the same logic. The charity claims the 20% basic rate from HMRC, and you claim the difference between your marginal rate and the basic rate through Self Assessment. At the additional rate, that means recovering an extra 25% of the gross donation, or £250 on a £1,000 gross gift. Gift Aid donations also reduce your adjusted net income, so they can help restore tapered allowances in the same way pension contributions do.

If You Live in Scotland

Scottish income tax rates are set by the Scottish Parliament and differ from the rest of the UK. Scotland’s top rate is 48% on income above £125,140, three points higher than the additional rate elsewhere, and Scotland uses extra bands lower down (starter, intermediate, and advanced) that do not exist in the rest of the UK. For 2026–27, no rate changes have been confirmed, though some lower-band thresholds are moving up.⁸

Dividend tax, capital gains tax, and savings tax rates stay UK-wide. Only earnings and pension income are taxed at Scottish rates.

Self Assessment, Payments on Account, and Deadlines

Additional rate taxpayers almost always need to file a Self Assessment return. Online returns must be submitted by 11:59 pm on 31 January after the end of the tax year; paper returns have to be in by 31 October. Filing runs through the HMRC Self Assessment online portal.⁹

If your Self Assessment bill was £1,000 or more and less than 80% of your tax was collected at source through PAYE, HMRC will demand payments on account toward the next year’s liability. Each payment is half of the previous year’s tax bill. The first is due by 31 January (the same day as your return), the second by 31 July, and a balancing payment covers any shortfall the following 31 January.¹⁰

In your first year of Self Assessment, that timing can bite hard. You could owe up to 150% of a normal year’s tax in a single January: the full balance for the year just ended, plus the first payment on account for the year ahead.¹⁰

Missing 31 January triggers an automatic £100 penalty even if you owe nothing. From there the penalties escalate: after three months, £10 per day for up to 90 days (a maximum of £900); at six months, the greater of £300 or 5% of the tax due; at twelve months, a further charge of the greater of £300 or 5%, rising to 70% or even 100% of the tax owed where information has been deliberately withheld. These penalties sit in Schedule 55 of the Finance Act 2009.¹¹

HMRC also charges interest on any unpaid tax, currently 7.75% from 9 January 2026. The rate is fixed at the Bank of England base rate plus 4%, so it moves. On a large additional rate bill, interest alone can run to thousands of pounds within months.¹²

1
GOV.UK. Income Tax Rates and Allowances for Current and Previous Tax Years
2
GOV.UK. Income Tax Rates and Personal Allowances
3
GOV.UK. Tax on Savings Interest – How Much Tax You Pay
4
GOV.UK. Marriage Allowance
5
GOV.UK. Capital Gains Tax – Rates and Allowances
6
GOV.UK. High Income Child Benefit Charge – Overview
7
GOV.UK. Tax on Your Private Pension Contributions – Tax Relief
8
GOV.UK. Income Tax in Scotland – Current Rates
9
GOV.UK. Self Assessment Tax Returns – Deadlines
10
GOV.UK. Understand Your Self Assessment Tax Bill – Payments on Account
11
Legislation.gov.uk. Finance Act 2009 – Schedule 55
12
GOV.UK. HMRC Interest Rates for Late and Early Payments