Basic, Higher and Additional Rate Tax Bands: Thresholds and Traps

For the 2025/26 tax year, the UK income tax bands on earned income are 20% (basic rate) on the slice from £12,571 to £50,270, 40% (higher rate) from £50,271 to £125,140, and 45% (additional rate) on anything above £125,140. Sitting underneath those bands is a tax-free Personal Allowance of £12,570, so the first £12,570 you earn attracts no income tax at all. The tax year runs from 6 April 2025 to 5 April 2026, and every pound of your income passes through the bands in order, with only the money inside each window taxed at that window’s rate.¹

The Personal Allowance

The Personal Allowance is the £12,570 slice at the bottom of your income that is not taxed. Most employees receive it automatically through PAYE, with the tax code adjusting pay packets across the year so the allowance is spread evenly.¹

The allowance is not fixed for everyone. Once your income passes £100,000 it starts to shrink, and by £125,140 it has been withdrawn entirely.² That withdrawal is not a quirk — it’s the reason the 45% band starts at exactly £125,140, which is £100,000 plus twice the £12,570 allowance.

Basic Rate: 20%

Income between £12,571 and £50,270 is taxed at 20%. That’s a band £37,700 wide, and it’s where most UK taxpayers sit.¹ If your only income is a salary below £50,270, 20% is the highest rate you’ll ever pay on your earnings.

Higher Rate: 40%

Income between £50,271 and £125,140 is taxed at 40%.¹ Only the income inside that window is charged at 40%. Crossing the £50,271 threshold does not push your whole salary to the higher rate; everything below still sits in the basic band.

Bonuses, taxable benefits, and other compensation count toward your total income, so a year-end bonus can lift you into higher-rate territory even when your base salary stays below £50,270. Pension contributions are the usual tool for managing the position, because they reduce the income that gets tested against the threshold.

Additional Rate: 45%

Income above £125,140 is taxed at 45%.¹ The threshold used to be £150,000, but HMRC lowered it to £125,140 from 6 April 2023.³ Anyone paying tax at 45% will typically need to file a Self Assessment return.

How the Bands Fit Together on a Real Salary

The UK uses a progressive system. Your income is sliced into segments and each segment is taxed only at the rate for that band, so a higher marginal rate never applies to your whole salary.

Take someone earning £80,000 in 2025/26:¹

The first £12,570 is covered by the Personal Allowance, so no tax.
The next £37,700 (from £12,571 to £50,270) is taxed at 20%, producing £7,540.
The remaining £29,730 (from £50,271 to £80,000) is taxed at 40%, producing £11,892.

Total income tax: £19,432. Divide that by the £80,000 salary and the effective rate is about 24.3%, well below the 40% headline. The marginal rate is what applies to the next pound you earn; the effective rate is the overall proportion of your income going to tax. A pay rise never reduces your take-home pay, because only the additional income is taxed at the higher rate.

Income tax is not the only deduction from a payslip. National Insurance is separate, and the figures above reflect income tax alone.

The £100,000 Trap

Between £100,000 and £125,140, the tax system produces an effective marginal rate of roughly 60%. The mechanism is the Personal Allowance taper: for every £2 earned above £100,000, the allowance shrinks by £1, until it disappears entirely at £125,140.²

Inside that band, two things happen to every extra pound you earn. You pay 40% income tax on it directly, and you also lose 50p of tax-free allowance, which is then taxed at 40%. Add those together and the effective cost of each additional pound is around 60p. A pay rise from £99,000 to £110,000 delivers far less take-home money than most people expect.

Pension contributions are the most common way to manage this, because they reduce your adjusted net income and can bring you back below £100,000 for tax purposes. Charitable donations under Gift Aid work in the same direction.

Dividends and Savings Interest Have Their Own Rates

The 20%, 40%, and 45% rates apply to earned income: salary, self-employment profits, pension income, and rental income. Dividends and savings interest follow different rules.

Dividend rates are 8.75% for basic rate taxpayers, 33.75% for higher rate, and 39.35% for additional rate, and there is a £500 dividend allowance each year before those rates apply.⁴

Savings interest gets a Personal Savings Allowance: £1,000 tax-free for basic rate taxpayers, £500 for higher rate taxpayers, and nothing for additional rate taxpayers.⁵ Someone paying 40% on their salary will not necessarily pay 40% on their investment income.

Different Bands Apply in Scotland

If you’re a Scottish resident, the rates above do not apply to your non-savings, non-dividend income. The Scottish Parliament sets its own rates, and for 2025/26 there are six bands:⁶

Starter rate: 19% on income from £12,571 to £15,397
Basic rate: 20% on £15,398 to £27,491
Intermediate rate: 21% on £27,492 to £43,662
Higher rate: 42% on £43,663 to £75,000
Advanced rate: 45% on £75,001 to £125,140
Top rate: 48% on income above £125,140

The £12,570 Personal Allowance and the £100,000 taper still apply in Scotland. The differences widen at higher incomes, because the 42% rate kicks in at £43,663 rather than £50,271, and at two percentage points higher than the rest of the UK.

Frozen Thresholds Mean More People Pay More

Every band described above has been frozen at the same cash level since 2021, and the freeze has been extended through at least the end of the decade.⁷ In a typical year, thresholds would rise roughly with inflation so that the same real income kept the same tax treatment. That isn’t happening.

The effect is known as fiscal drag. As wages rise with inflation, more income spills over into higher bands even though purchasing power hasn’t changed. Someone earning £49,000 in 2021 sat comfortably in the basic rate band. The same job paying £53,000 today now crosses into 40% territory, despite buying no more than it did before. Over several years, fiscal drag is one of the largest tax increases any government can impose, precisely because it requires no legislation and generates no Budget-day headlines.

1
GOV.UK. Income Tax Rates and Personal Allowances
2
GOV.UK. Income Tax Rates and Allowances for Current and Previous Tax Years
3
HM Revenue & Customs. Income Tax Additional Rate Threshold From 6 April 2023
4
GOV.UK. Check if You Have to Pay Tax on Dividends
5
GOV.UK. Tax on Savings Interest: How Much Tax You Pay
6
Scottish Government. Scottish Income Tax 2025 to 2026: Factsheet
7
UK Parliament. Fiscal Drag: An Explainer