Crossed Into 40% Tax? The First Five Things to Do

1. Understand what has actually changed
For 2026/27, the personal allowance is £12,570, the basic rate of 20% applies up to £50,270, and anything above that up to £125,140 is taxed at 40%.

So if you earn £55,000, you are not paying 40% on all of it. You are paying 20% on the portion between £12,571 and £50,270, and 40% only on the £4,730 above that.

It is worth knowing this because a lot of people turn down a pay rise thinking it will leave them worse off. It will not. You always take home more by earning more, even once you have crossed the threshold.

This is the single biggest lever you have. Every pound you put into your pension from income above £50,270 gets 40% tax relief rather than 20%.

If your contributions go through salary sacrifice, the saving is even bigger, because you also avoid National Insurance on that amount.

Worked example: if you earn £60,000 and pay an extra £5,000 into your pension, that £5,000 comes off your taxable income before the 40% band applies. Instead of paying 40% tax on that slice, it goes straight into your pension pot, effectively costing you £3,000 out of your take-home pay for £5,000 landing in your pension.

The annual allowance for pension contributions is £60,000 for most people, so there is plenty of room to do this if you can afford it.

As a basic rate taxpayer, you could earn £1,000 in savings interest tax free. Cross into the 40% bracket and that drops to £500. Anything above that is taxed at 40%.

With savings rates still meaningfully above zero, it does not take a huge pot to breach £500 in interest. Top easy access rates are currently around 4.5% to 5%, so a £20,000 pot in an ordinary savings account could earn roughly £900 to £1,000 in interest over a year.

As a higher rate taxpayer, only the first £500 of that is tax free. The remaining £400 to £500 is taxed at 40%, costing you an extra £160 to £200 in tax you would not have owed as a basic rate taxpayer.

If you have savings sitting in an ordinary account, this is the point to think about moving some of it into an ISA, where interest, dividends and gains are never taxed regardless of your tax band.

You can put up to £20,000 a year into ISAs. If you are newly higher rate, this matters more than it did last year, because everything outside an ISA is now taxed more heavily.

Dividend income above the £500 dividend allowance is taxed at 35.75% once you are a higher rate taxpayer, up from 8.75% within the basic rate band. Money inside an ISA avoids that entirely.

If you have investments or savings outside an ISA and unused ISA allowance, this is the first thing to fix.

If you have children and claim Child Benefit, crossing into higher rate territory brings you close to another threshold.

The Child Benefit charge starts clawing money back once your adjusted net income passes £60,000, rising by 1% of your Child Benefit for every £200 you earn above that, until it disappears completely at £80,000.

This is based on your adjusted net income, which is your income after pension contributions and Gift Aid donations are deducted.

This is another reason point 2 matters: increasing your pension contributions can bring your adjusted net income down and protect your Child Benefit at the same time as cutting your tax bill.

Crossing into 40% tax is not something to fear, but it is a signal to check five things: your pension contributions, your savings allowance, your ISA usage, your dividend exposure, and your Child Benefit position if you have children. Get those in order and you can often claw back more than the extra tax is costing you.
This guide is for general information only and is not personal financial advice. Tax rules can change and how they apply to you depends on your individual circumstances. If you are not sure what is right for you, speak to a regulated financial adviser.

Sources: House of Commons Library, Direct taxes: Rates and allowances for 2026/27; HMRC and GOV.UK, High Income Child Benefit Charge; Morningstar UK, Your UK Tax Calendar for 2026 and Beyond.