In 2026 to 2027 you become a higher rate taxpayer in England, Wales and Northern Ireland once your income passes £50,270, assuming a standard Personal Allowance. Only the slice above that point is taxed at 40%, but crossing it also halves your Personal Savings Allowance to £500, raises the tax on dividends and gains, and means you must usually claim extra relief yourself on pension contributions and Gift Aid donations.

Where does the higher rate start?

For 2026 to 2027 the Personal Allowance is £12,570 and the basic rate band covers the next £37,700, so higher rate tax at 40% applies to income from £50,271 to £125,140. Above £125,140 the additional rate of 45% applies. HMRC’s Budget 2025 policy paper confirms that the Personal Allowance and basic rate limit stay at these levels until 5 April 2031, so the higher rate threshold remains £50,270 until then. Pay rises alone will therefore move more people over the line.

Scotland is different for wages, pensions and most other income. In 2026 to 2027 the Scottish intermediate rate of 21% applies from £29,527 and the higher rate of 42% from £43,663. Scottish taxpayers pay the same tax as the rest of the UK on savings interest and dividends, so for those types of income the UK bands apply.

Does all your income get taxed at 40%?

No. Only income above the threshold is taxed at the higher rate. Someone earning £52,270 pays 40% on £2,000 and the same tax as before on everything below it.

For employees, National Insurance moves the other way. In 2026 to 2027 Class 1 employee contributions for a category A employee are 8% on weekly earnings between £242.01 and £967 and 2% above £967 a week. The upper earnings limit is aligned with the £50,270 higher rate threshold, so on salary above that point the combined marginal rate in England rises from 28% to 42%, not to 48%.

What happens to tax on savings interest?

Section 12B of the Income Tax Act 2007 sets the Personal Savings Allowance. It is £1,000 if none of your income is higher rate income, £500 if any of it is, and nil if any of it is additional rate income. The test is all or nothing: having just £1 of income in the higher rate band cuts the allowance by £500. Interest above the allowance is taxed at 40%. See the Personal Savings Allowance for how it interacts with the starting rate for savings.

For a Scottish taxpayer, section 12B(8) asks whether the income would be higher rate income under the rest of UK bands. A Scottish taxpayer earning £45,000 pays the Scottish higher rate on part of their salary but keeps the £1,000 allowance.

What about dividends and capital gains?

Dividends above the £500 dividend allowance are taxed at 35.75% in the higher rate band for 2026 to 2027, compared with 10.75% in the basic rate band. Dividends are added on top of other income to find the band. If you receive more than £10,000 of dividends you need a Self Assessment return; below that you can ask HMRC to collect the tax through your tax code. See dividend allowance and tax rates.

Capital gains are charged at 24% for higher and additional rate taxpayers from 6 April 2026, against 18% on gains that fit within the unused basic rate band. After the £3,000 annual exempt amount, gains are added to taxable income, so a basic rate taxpayer can pay a mix of 18% and 24%.

How do you claim the extra pension tax relief?

Most personal pensions use relief at source: you pay £80 and the provider claims £20 from HMRC, giving £100 in your pot. That only covers basic rate relief. If you pay 40% tax, you can claim an extra 20% on the amount of income taxed at 40%, through your Self Assessment return. If you do not file a return, HMRC’s online claim service gives the relief through your tax code for the current year, and you must upload proof of the contributions. Workplace schemes that deduct contributions from pay before tax give full relief automatically, so there is nothing to claim.

Legally, the claim works by extending your basic rate band by the gross contribution (Finance Act 2004, section 192(4)). HMRC’s own example: someone earning £60,270 who pays £12,000 gross into a relief at source scheme can claim extra relief on £10,000, the amount taxed at 40%, but not on the other £2,000. See claiming higher rate pension relief.

How does Gift Aid relief change?

Gift Aid works the same way. A £100 donation becomes £125 for the charity, and a 40% taxpayer can claim back £25 (20% of £125). Section 414 of the Income Tax Act 2007 extends the basic rate and higher rate limits by the grossed up gift. You claim on your Self Assessment return or by asking HMRC to amend your tax code. Donations made through Payroll Giving already get full relief, so nothing extra is due. On a return you can also elect to treat donations made after the year end as made in the previous year, which helps if you were a higher rate taxpayer last year but will not be this year. See Gift Aid higher rate relief.

Do other allowances change?

  • Marriage Allowance. The partner receiving the transferred £1,260 must pay tax at the basic rate (or, in Scotland, the starter, basic or intermediate rate). Once their income goes over £50,270, or £43,662 in Scotland, the couple can no longer claim. See Marriage Allowance.
  • High Income Child Benefit Charge. This starts when adjusted net income is over £60,000, not at the higher rate threshold, but many new higher rate taxpayers are close to it. See the High Income Child Benefit Charge.
  • Personal Allowance taper. Above £100,000 of adjusted net income the allowance falls by £1 for every £2, disappearing at £125,140. Gross Gift Aid and relief at source pension contributions reduce adjusted net income. See Personal Allowance tapering.

A worked example

Illustration only. Sam lives in England, has a standard Personal Allowance and earns a salary of £53,000 in 2026 to 2027, plus £900 of bank interest. Sam pays £4,000 into a personal pension, which the provider grosses up to £5,000.

  • Taxable salary is £40,430 (£53,000 less £12,570). Without a claim, the basic rate band of £37,700 is exceeded by £2,730, so that slice is taxed at 40%.
  • Because some income is higher rate income, the Personal Savings Allowance is £500, so £400 of interest is taxed at 40%: £160.
  • If Sam claims higher rate relief, the basic rate band extends by £5,000 to £42,700. Salary of £40,430 and interest of £900 now fit within it, so no income is higher rate income.
  • The salary slice of £2,730 is now taxed at 20% instead of 40%, saving £546, and the allowance returns to £1,000, so the interest is tax free, saving £160.

The claim is worth £706 in total, even though Sam’s extra pension relief alone is £546.

What mistakes do people make?

  • Not claiming extra relief on relief at source pension contributions and Gift Aid. It is not given automatically.
  • Assuming every pound of income is now taxed at 40%, and turning down a pay rise as a result.
  • Forgetting that savings interest above £500 is now taxable. Banks report interest to HMRC, which will usually collect the tax through your tax code or a calculation.
  • Applying Scottish bands to savings or dividends, which use the rest of UK bands.
  • Leaving Marriage Allowance in place after the receiving partner’s income has risen above the basic rate band.
  • Using 2026 to 2027 rates for 2027 to 2028 savings income, when savings rates are due to rise by 2 percentage points from that year.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.