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The additional rate tax is the top rate of Income Tax in the UK. You pay this when you earn more than £125,140 per year.
Income Tax is paid by everyone in the UK who earns more than £12,570 per year. The first £12,570 is Income Tax-free and known as the Personal Allowance. However, when you earn more than £100,000 per year, you gradually lose your eligibility for this allowance, £1 at a time.
Take a look at the Income Tax rates for the 2023/24 tax year:
|Up to £12,570||0%||Personal allowance|
|£12,571 to £50,270||20%||Basic rate|
|£50,271 to £125,140||40%||Higher rate|
|Over £125,0140||45%||Additional rate|
In the 2022/2023 tax year, the additional rate is 45% on earnings above £125,140. So if your annual income is £170,000, for example, you’re an additional rate taxpayer. This means that you pay 45% tax on your income above £125,140.
In this case, that’s broken down like this:
If you’re in Scotland, the additional rate tax is actually 47% on earnings above the same £125,140 limit.
When you earn more than £100,000, you start to lose your entitlement to the Personal Allowance. You lose it by £1 for every £2 that you earn over £100k. However, you’re not taxed at 45% until you earn over £125,140 which means that between £100,000 and £125,140, you’re taxed an extra 20% on the Personal Allowance that you’re losing. This can be confusing to get your head around, so take a look at our guide on the tax implications of earning over 100k – and how to get around it.
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