Additional rate tax is the United Kingdom’s top band of income tax, charging 45% on every pound of taxable income above £125,140 in the 2025/26 tax year. It applies to salary, rental profits, savings interest, and most other taxable earnings. Because the threshold sits at the same point where your tax-free Personal Allowance has fully disappeared, crossing into this band costs more than the headline 45% suggests.
Where the 45% Rate Starts
For 2025/26 (6 April 2025 to 5 April 2026), income tax in England, Wales, and Northern Ireland runs in three main bands above the Personal Allowance:
- Basic rate: 20% on taxable income from £12,571 to £50,270
- Higher rate: 40% on taxable income from £50,271 to £125,140
- Additional rate: 45% on taxable income above £125,140
The additional rate threshold sat at £150,000 for more than a decade before the government lowered it to £125,140 from 6 April 2023. The change was introduced through the Autumn Finance Bill 2022 and enacted in the Finance Act 2023, pulling significantly more taxpayers into the top bracket overnight.1GOV.UK. Income Tax Additional Rate Threshold from 6 April 2023
These thresholds are not moving. The previous government froze income tax thresholds until April 2028, and the Labour government extended that freeze through April 2031 at the Autumn Budget 2025.2House of Commons Library. Fiscal Drag: An Explainer As wages track inflation while the bands stay flat, more earners drift into the additional rate each year without any change in legislation. This effect is known as fiscal drag.
Why Your Personal Allowance Has Already Gone
The standard Personal Allowance for 2025/26 is £12,570, the slice of income everyone can receive tax-free. Once your adjusted net income passes £100,000, that allowance starts shrinking. You lose £1 of allowance for every £2 earned above £100,000, and by £125,140 the entire allowance is gone.3GOV.UK. Income Tax Rates and Personal Allowances
This withdrawal creates one of the sharpest traps in the system. On income between £100,000 and £125,140, you pay 40% on the earnings themselves and simultaneously lose allowance that had been taxed at 0%. The combined effective marginal rate is 60%. Every extra pound in that window costs you 60 pence. Anyone reaching the additional rate has already passed through this zone, so the 45% band starts with no allowance left to shelter it.4GOV.UK. Income Tax Rates and Allowances for Current and Previous Tax Years – Section: Personal Allowances
Scottish Taxpayers Pay a Different Top Rate
If you live in Scotland, the picture is different. Scotland sets its own rates and bands on non-savings, non-dividend income, and for 2025/26 the structure has six bands. The ones that matter most for high earners are:
- Higher rate: 42% on income from £43,663 to £75,000
- Advanced rate: 45% on income from £75,001 to £125,140
- Top rate: 48% on income above £125,140
The Scottish top rate of 48% is three percentage points above the 45% additional rate applied in the rest of the UK.5MyGov.Scot. Current Rates – 6 April 2026 to 5 April 2027 The Personal Allowance rules are UK-wide, so the £100,000 withdrawal trap applies equally in Scotland.
How Dividends and Savings Are Taxed at This Level
The 45% figure applies to earned and most other taxable income, but dividends and savings interest sit on their own scales. Additional rate taxpayers pay 39.35% on dividends above the £500 dividend allowance.6GOV.UK. Check if You Have to Pay Tax on Dividends They also receive no Personal Savings Allowance, so every pound of savings interest is taxable.
Adjusted Net Income Is the Number That Matters
Adjusted net income is the figure HMRC uses to work out your Personal Allowance and your position in the tax bands. Getting it right can be the difference between paying 60% on a slice of income and keeping your effective rate much lower.
Start with total taxable income: salary before deductions, benefits in kind reported on your P11D, rental income, savings interest, dividends, and any other taxable receipts. From that total, subtract qualifying deductions. Pension contributions made through a relief-at-source scheme are grossed up: for every £1 contributed, you deduct £1.25. Contributions made through a net pay arrangement are already reflected in your gross pay figure. Gift Aid donations work the same way as relief-at-source pensions, at £1.25 per £1 given.7GOV.UK. Personal Allowances: Adjusted Net Income
If deductions pull your adjusted net income below £125,140, you stay out of the additional rate entirely. If they bring you below £100,000, you recover some or all of your Personal Allowance. This is the biggest lever available at this income level, and pension contributions are the tool most people use.
Using Pension Contributions to Cut the Bill
Pension contributions offer the strongest tax relief available to additional rate taxpayers. Your provider gives you basic rate relief (20%) at source. You then claim the rest through Self Assessment: an extra 20% at higher rate, or an extra 25% at additional rate.8GOV.UK. Tax on Your Private Pension Contributions: Tax Relief
The standard annual allowance for 2025/26 is £60,000. You can contribute up to 100% of your annual earnings, but tax relief only applies within the annual allowance. Unused allowance from the previous three tax years can be carried forward.
High earners face a further restriction called the tapered annual allowance. If your threshold income exceeds £200,000 and your adjusted income exceeds £260,000, the £60,000 allowance reduces by £1 for every £2 of adjusted income above £260,000. The floor is £10,000, reached when adjusted income hits £360,000.
The arithmetic rewards planning. A taxpayer earning £130,000 who puts £30,000 into a pension brings adjusted net income down to £100,000, restoring the full £12,570 Personal Allowance and avoiding both the 45% band and the 60% effective zone below it. The tax saved goes well beyond the 45% headline because the recovered allowance is part of the return.
Child Benefit Is Fully Clawed Back
Additional rate taxpayers who receive Child Benefit will owe the full amount back through the High Income Child Benefit Charge. The charge starts when either partner in a household has adjusted net income above £60,000, and at £80,000 or above the entire benefit must be repaid. For every £200 above £60,000, 1% of the Child Benefit is clawed back.9GOV.UK. High Income Child Benefit Charge: Overview
Because the additional rate starts at £125,140, anyone in this band is well past the £80,000 ceiling and owes 100% back. Some families opt out of receiving Child Benefit to avoid the Self Assessment step. Others keep claiming to preserve National Insurance credits, particularly where one partner is not working.
Self Assessment: Filing, Payments, and Penalties
Most additional rate taxpayers need to file a Self Assessment return, especially with income outside PAYE, pension relief to claim beyond the basic rate, or a High Income Child Benefit Charge to settle. If you have not filed before, you must register with HMRC by 5 October following the end of the tax year to get a Unique Taxpayer Reference.10GOV.UK. Self Assessment Tax Returns: Deadlines
Paper returns must reach HMRC by 31 October. Online returns are due by 31 January following the end of the tax year, and the tax bill is due on that same date.10GOV.UK. Self Assessment Tax Returns: Deadlines
Payments on Account
If your Self Assessment bill was £1,000 or more last year and less than 80% of your total tax was collected through PAYE, HMRC requires payments on account. These are advance payments toward next year’s bill, split into two instalments due 31 January and 31 July. Each equals half of the previous year’s Self Assessment liability.11GOV.UK. Understand Your Self Assessment Tax Bill: Payments on Account At additional rate income levels the amounts are substantial. If your income drops sharply from one year to the next you can apply to reduce them, but underestimating draws interest on the shortfall.
Penalties and Interest
Missing the filing deadline triggers an automatic £100 penalty, even if you owe no tax. After three months, daily penalties of £10 begin, up to £900. After six months, a further penalty applies: 5% of the tax due or £300, whichever is greater. The same charge applies again after twelve months.12GOV.UK. Self Assessment Tax Returns: Penalties
Late payment of tax carries interest at 7.75% as of January 2026, well above most commercial savings rates.13GOV.UK. HMRC Interest Rates for Late and Early Payments On a five-figure bill, a few months of delay adds up quickly. Penalties and interest are separate, so a late filer who also pays late faces both at once.