Effective Rate
The average rate of tax you pay across all your income, calculated by dividing your total tax bill by your gross income. Unlike the marginal rate, the effective rate gives a truer picture of your overall tax burden. Because the UK tax system is progressive, your effective rate will always be lower than your highest marginal rate.
Related Terms
Marginal Rate
The rate of tax paid on the next pound of income you earn, which determines the tax cost or saving of earning slightly more or less.
Basic Rate
The standard income tax rate of 20% applied to taxable income between the Personal Allowance and the higher-rate threshold, currently £12,571 to £50,270 in England, Wales, and Northern Ireland.
Higher Rate
The income tax rate of 40% applied to taxable income above £50,270 up to £125,140 in England, Wales, and Northern Ireland.
Additional Rate
The highest income tax rate in England, Wales, and Northern Ireland, charged at 45% on taxable income above £125,140.
Taxable Income
The portion of your total income that is actually subject to income tax after deducting the Personal Allowance and any other reliefs or deductions you are entitled to.
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