Marginal Tax Rate UK: The Complete Guide for 2026
What is the marginal tax rate in the UK? Learn how additional income is taxed, why your marginal rate can exceed 60%, and how to plan your earnings tax-efficiently.
Your marginal tax rate is the percentage of tax you pay on the next pound you earn. It is not the same as your average tax rate. Understanding your marginal rate is essential for making informed decisions about salary increases, overtime, bonuses, pension contributions, and other financial planning choices.
For most employees in England, Wales, and Northern Ireland, the headline income tax rates are 20% (basic rate), 40% (higher rate), and 45% (additional rate). However, the actual marginal tax rate can be much higher when National Insurance contributions, benefit withdrawals, and other factors are taken into account. For example, a person earning between £100,000 and £125,140 faces an effective marginal tax rate of 60% on income tax alone, rising to approximately 62% when employee National Insurance is included.
This guide explains everything you need to know about marginal tax rates in the UK. It covers how they work, the different rates that apply, the "60% tax trap," the High Income Child Benefit Charge, and strategies to reduce your tax liability.
For a full understanding of the UK tax system, our UK tax brackets guide explains the rate structure. If you are interested in tax planning for retirement, our alternative retirement plan guide covers pension strategies. For understanding how tax codes affect your take-home pay, our UK tax codes guide provides a full breakdown.
Your marginal tax rate is the tax you pay on the next pound you earn. The headline rates are 20%, 40%, and 45%, but with National Insurance and benefit withdrawals, some earners face marginal rates exceeding 60%.
What Is a Marginal Tax Rate
The marginal tax rate is the percentage of tax you pay on an additional pound of income. It is the rate that applies to the highest slice of your earnings, not the rate on your total income.
For example, if you earn £35,000 and receive a £1,000 bonus, the marginal tax rate is the rate at which that £1,000 is taxed. If you are a basic rate taxpayer, the marginal rate is 20% income tax plus 8% National Insurance, meaning you would pay £280 tax on the bonus and keep £720.
According to the ICAEW, the marginal rate of income tax is the percentage of tax paid on a particular slice of income. This may be higher than the headline rates of 20%, 40% and 45% due to the withdrawal of the personal allowance.
HMRC describes the marginal rate as the rate of tax that would be paid on the next pound of taxable income. If you are considering working overtime, taking a second job, or making pension contributions, understanding your marginal rate helps you calculate the actual take-home benefit.
For example, a higher rate taxpayer earning £60,000 who is considering a £5,000 bonus would pay 40% income tax and 2% National Insurance on that bonus, resulting in a marginal rate of 42%. The actual take-home amount would be £2,900.
The marginal rate can also be affected by other factors such as student loan repayments and the withdrawal of means-tested benefits. These additional deductions can make the marginal rate significantly higher than the headline rates suggest.
Our income tax calculator can help you estimate your marginal rate based on your specific income and circumstances.
Your marginal tax rate is the tax on your next pound of income, not the average rate across all your earnings. It determines how much of a pay rise, bonus, or overtime you actually keep.
UK Income Tax Bands and National Insurance
To understand your marginal tax rate, you need to know the income tax bands and National Insurance rates that apply to your income.
At the time of writing, the Personal Allowance is £12,570, which means you can earn this amount before paying any Income Tax. The basic rate of 20% applies to income between £12,571 and £50,270. The higher rate of 40% applies to income between £50,271 and £125,140. The additional rate of 45% applies to income above £125,140.
In addition to Income Tax, employees pay National Insurance contributions (NICs) on their earnings. The employee National Insurance rate is 8% on earnings between £12,571 and £50,270, and 2% on earnings above £50,270.
Here is a quick summary table of the combined marginal rates for employees in England, Wales, and Northern Ireland.
| Income Band | Income Tax Rate | Employee NI Rate | Combined Marginal Rate |
|---|---|---|---|
| £0 – £12,570 | 0% | 0% | 0% |
| £12,571 – £50,270 | 20% | 8% | 28% |
| £50,271 – £100,000 | 40% | 2% | 42% |
| £100,000 – £125,140 | 60% (effective) | 2% | 62% |
| Above £125,140 | 45% | 2% | 47% |
The combined marginal rate shows the true cost of additional earnings. For example, a basic rate taxpayer earning between £12,571 and £50,270 pays 28% on extra income, not 20%.
For self-employed individuals, the structure is different. Class 4 National Insurance is 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. The combined marginal rates for self-employed individuals are 26% (basic rate), 42% (higher rate up to £100,000), and 47% (above £125,140).
Our National Insurance calculator can help you understand your NI contributions.
Income tax is just one part of the picture. Employee National Insurance adds 8% to the marginal rate in the basic rate band and 2% in higher bands, making the true marginal rates 28%, 42%, and 47%.
The 60% Tax Trap: Marginal Tax Rate Between £100,000 and £125,140
One of the most important marginal tax issues is the "60% tax trap" that affects earners between £100,000 and £125,140. This occurs because the personal allowance is withdrawn gradually once income exceeds £100,000.
The personal allowance is reduced by £1 for every £2 of income above £100,000. By the time income reaches £125,140, the allowance has been fully withdrawn to zero.
This tapering effect adds an additional 20% income tax on income in this band. On top of the 40% higher rate, the marginal rate of income tax is effectively 60%.
When employee National Insurance of 2% is added, the combined marginal rate is approximately 62%.
For example, consider an employee earning £110,000. Their personal allowance is reduced by £5,000 (half of the £10,000 above £100,000), leaving £7,570. The £10,000 of income between £100,000 and £110,000 is taxed at 40% (£4,000) plus the extra tax from the lost allowance (£5,000 at 40% = £2,000). Total tax on that £10,000 is £6,000, an effective rate of 60%.
According to the Economics Observatory, families with children can face even higher effective marginal rates. The High Income Child Benefit Charge (HICBC) means parents lose 1% of their Child Benefit for every £200 earned over £60,000. For a two-child family, based on current Child Benefit rates, this adds an additional marginal rate of approximately 11%, resulting in effective rates between 53% and 68% for parents with children in the £60,000 to £80,000 range.
The number of people affected by the 60% tax trap has grown significantly due to frozen tax thresholds. A substantial number of higher earners are now affected by this marginal rate, with projections indicating continued growth as thresholds remain frozen.
Our how to avoid inheritance tax guide covers broader wealth planning strategies that may also help with income tax planning.
The personal allowance taper between £100,000 and £125,140 creates an effective income tax rate of 60%. When National Insurance is added, the marginal rate reaches approximately 62%. This is one of the highest marginal rates in the UK tax system.
The High Income Child Benefit Charge
The High Income Child Benefit Charge is another factor that can significantly increase your marginal tax rate. It applies when you or your partner have an adjusted net income above £60,000 and either of you claims Child Benefit.
The charge is calculated at 1% of the Child Benefit received for every £200 of income above £60,000. The full Child Benefit amount is clawed back when income reaches £80,000.
For example, a family with two children may receive in the region of £2,000 to £2,500 per year in Child Benefit depending on current rates. If the higher earner has an income of £70,000, they would lose 50% of the Child Benefit, resulting in an additional tax charge of approximately £1,000 to £1,250. This is equivalent to an additional marginal tax rate of approximately 5% to 6% on the income between £60,000 and £70,000.
When combined with income tax at 40% and National Insurance at 2%, the total marginal rate for a parent with two children in the £60,000 to £70,000 range can exceed 53%.
Over 1 million families are now affected by the High Income Child Benefit Charge, with the number growing as tax thresholds remain frozen.
There are legitimate ways to reduce the impact of the HICBC. Making pension contributions to bring your adjusted net income below £60,000 can eliminate the charge entirely. This is why many higher earners choose to increase their pension contributions to avoid the tax trap.
Our adjusted net income guide explains how to calculate your adjusted net income and plan around these thresholds.
The High Income Child Benefit Charge can add a significant amount to your marginal tax rate for families claiming Child Benefit. Combined with 42% income tax and NI, the total marginal rate can exceed 50% for parents earning between £60,000 and £80,000.
Marginal Tax Rate vs Effective Tax Rate
It is important to understand the difference between your marginal tax rate and your effective (or average) tax rate.
Your marginal tax rate is the tax you pay on the next pound you earn. This is what matters for decisions about extra work, bonuses, or pension contributions. Your effective tax rate is the total tax you pay divided by your total income. This is the average rate at which all your income is taxed.
For example, if you earn £35,000, your marginal rate is 20% (plus 8% NI = 28% combined). But your effective tax rate is much lower because the first £12,570 is tax-free. Your effective rate would be approximately 13% of your gross income.
Here is a comparison table showing approximate marginal and effective rates at different income levels for employees in England, Wales, and Northern Ireland.
| Annual Income | Marginal Rate (inc NI) | Approximate Effective Tax Rate (inc NI) |
|---|---|---|
| £20,000 | 28% | Approximately 9% |
| £30,000 | 28% | Approximately 13% |
| £50,000 | 42% | Approximately 16% |
| £70,000 | 42% | Approximately 24% |
| £110,000 | 62% | Approximately 32% |
| £150,000 | 47% | Approximately 35% |
This distinction is important because many people mistakenly believe they pay their marginal rate on all their income. The progressive system means you only pay the higher rates on income above the thresholds.
Our UK tax brackets guide explains the rate structure in more detail.
Your marginal rate is the tax on your next pound of income. Your effective rate is your total tax divided by your total income. Understanding both helps you plan better.
Marginal Tax Rate and Student Loan Repayments
Student loan repayments are another factor that can significantly increase your marginal tax rate. Repayments are calculated as a percentage of your income above the relevant threshold, and they are deducted through PAYE alongside income tax and National Insurance.
The repayment rates and thresholds vary depending on which repayment plan you are on. For Plan 2 (England and Wales, 2012-2023 starters), the repayment rate is 9% on income above £29,385. For Plan 5 (England, from 2023), the rate is 9% on income above £25,000. For Postgraduate Loans, the rate is 6% on income above £21,000.
When student loan repayments are added to income tax and National Insurance, the marginal rate can be significantly higher. For a Plan 2 borrower earning £30,000, the combined marginal rate would be 20% income tax + 8% National Insurance + 9% student loan = 37%.
For a higher rate taxpayer on Plan 5 earning £55,000, the combined marginal rate would be 40% income tax + 2% National Insurance + 9% student loan = 51%.
Our student loan repayment calculator can help you calculate your repayments based on your specific plan and income.
Student loan repayments add 6% to 9% to your marginal tax rate. For a Plan 2 borrower on a basic rate salary, the combined marginal rate is 37%. For a higher rate taxpayer on Plan 5, it can exceed 50%.
Marginal Tax Rate and Pension Contributions
Pension contributions are one of the most effective ways to reduce your marginal tax rate. Contributions to a registered pension scheme reduce your taxable income, meaning you receive tax relief at your marginal rate.
For a basic rate taxpayer, a £100 pension contribution costs just £80 after basic rate tax relief (20%). The government adds the remaining £20 to your pension pot. For a higher rate taxpayer, a £100 contribution costs just £60 after higher rate relief (40%). For an additional rate taxpayer, a £100 contribution costs just £55 after 45% relief.
If you are caught in the 60% tax trap between £100,000 and £125,140, pension contributions are even more valuable. A £100 contribution in this band receives 60% tax relief, costing just £40. This is because the contribution not only saves 40% income tax but also restores some of your personal allowance that would otherwise have been tapered away.
For example, an earner on £115,000 who contributes £15,000 to their pension would reduce their income to £100,000, eliminating the personal allowance taper entirely. The tax saving on that £15,000 contribution would be 60%, or £9,000, making the net cost of the contribution just £6,000.
Salary sacrifice pension contributions can be even more effective because they also save National Insurance contributions. A basic rate taxpayer sacrificing £100 of salary saves 20% income tax and 8% National Insurance, making the net cost just £72. A higher rate taxpayer saves 40% income tax and 2% National Insurance, making the net cost £58.
For higher earners caught in the 60% tax trap, salary sacrifice pension contributions are particularly valuable. A £100 salary sacrifice saves 60% income tax (through personal allowance restoration) and 2% National Insurance, making the net cost just £38.
Our pension relief calculator can help you understand the tax savings from pension contributions.
Pension contributions are one of the most effective ways to reduce your marginal tax rate. Higher rate taxpayers get 40% relief, and those in the 60% tax trap get 60% relief. Salary sacrifice also saves National Insurance.
Marriage Allowance
Marriage Allowance allows the partner with a lower income to transfer up to £1,260 of their unused personal allowance to their spouse or civil partner. This can help reduce the household tax bill if one partner earns below the personal allowance threshold and the other pays tax at the basic rate.
To qualify, the transferor must generally be the lower-income partner with unused personal allowance. The recipient must be a basic rate taxpayer. The transfer can reduce the recipient's tax bill by up to £252 per year.
Marriage Allowance can be claimed by married couples and civil partners where one partner earns less than the personal allowance (currently £12,570) and the other partner earns between £12,571 and £50,270. If the recipient partner is a higher or additional rate taxpayer, they cannot benefit from the transferred allowance.
The application is made online through HMRC's Marriage Allowance service. The allowance continues automatically each year unless circumstances change or either partner opts out.
Our personal allowance guide explains how the personal allowance works and how Marriage Allowance can help.
Marriage Allowance allows the lower-earning partner to transfer up to £1,260 of unused personal allowance. The recipient must be a basic rate taxpayer. This can save up to £252 per year.
Marginal Tax Rate and Self-Employment
Self-employed individuals face a different tax structure. Instead of employee National Insurance, they pay Class 2 and Class 4 National Insurance on their profits.
Class 4 National Insurance is 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. For higher earners, the combined marginal rate is similar to employees.
However, self-employed individuals have the advantage of being able to deduct business expenses and claim various reliefs. This can significantly reduce their effective tax rate compared to employees.
The marginal tax rate for self-employed individuals varies depending on their profit levels and the expenses they can claim. For a sole trader with profits of £35,000, the marginal rate on additional income would be 20% income tax plus 6% Class 4 NI = 26%.
For a sole trader with profits of £70,000, the marginal rate would be 40% income tax plus 2% Class 4 NI = 42%.
Self-employed individuals also need to consider payments on account, which require them to pay half of the next year's tax bill in advance. This can affect cash flow but does not change the marginal tax rate.
Our self-employed tax calculator can help you estimate your tax and marginal rate based on your business profits.
Self-employed individuals pay Class 4 National Insurance instead of employee NI. The combined marginal rates are similar, but business expenses and reliefs can reduce the effective rate.
How to Reduce Your Marginal Tax Rate
There are several legitimate ways to reduce your marginal tax rate and keep more of your earnings.
Pension contributions are one of the most effective ways to reduce your marginal rate. Contributions to a registered pension scheme reduce your taxable income. For a higher rate taxpayer, a pension contribution of £100 costs only £60 after tax relief (or £58 if NI is also saved through salary sacrifice).
Salary sacrifice allows you to exchange part of your salary for non-cash benefits such as pension contributions, cycle-to-work schemes, or electric car leases. This reduces your gross taxable pay, lowering both income tax and National Insurance.
Gift Aid donations to registered charities also reduce your taxable income. If you are a higher or additional rate taxpayer, you can claim the difference between the basic rate relief claimed by the charity and your marginal rate through Self Assessment.
Marriage Allowance allows the lower-earning partner to transfer up to £1,260 of unused personal allowance to their spouse or civil partner, provided the recipient is a basic rate taxpayer.
Making use of ISAs can help protect savings and investment income from tax. Interest and gains within ISAs are completely tax free and do not count towards your personal allowance or affect your marginal tax rate.
Claiming all allowable expenses is essential for self-employed individuals. Many people miss legitimate expenses that could reduce their taxable profits and lower their marginal rate.
Our pension relief calculator can help you understand the tax savings from pension contributions.
Pension contributions, salary sacrifice, Gift Aid, Marriage Allowance, ISAs, and allowable expenses can all help reduce your marginal tax rate. Pension contributions are particularly effective for higher and additional rate taxpayers.
Final Thoughts
Understanding your marginal tax rate is essential for making informed financial decisions. Whether you are considering overtime, a bonus, or a pay rise, knowing how much tax you will pay on additional income helps you plan effectively.
The headline income tax rates of 20%, 40%, and 45% do not tell the full story. When National Insurance contributions, student loan repayments, benefit withdrawals, and other taxes are included, the true marginal rate can be significantly higher. The 60% effective income tax rate between £100,000 and £125,140 is a particularly important consideration for high earners. The High Income Child Benefit Charge adds another layer of complexity for parents, potentially pushing marginal rates above 50% in the £60,000 to £80,000 range.
There are legitimate ways to reduce your marginal tax rate. Pension contributions, salary sacrifice, and Gift Aid donations can all lower your taxable income. Understanding your position and taking advantage of available reliefs can help you keep more of your earnings.
All information in this guide is based on official HMRC and GOV.UK sources. Readers should verify current rates and allowances directly with HMRC before making financial decisions, as rules may change after publication.
Written by
Daniel Reed
Daniel Reed writes about PAYE, payslips, tax codes, workplace deductions and take-home pay in the UK.
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