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. In the UK, the marginal rate can exceed the stated tax band rate — for example, income between £100,000 and £125,140 faces an effective 60% marginal rate because the Personal Allowance is simultaneously withdrawn at £1 for every £2 earned. Understanding your marginal rate is essential for decisions about pension contributions, salary sacrifice, and dividend planning.
Related Terms
Effective Rate
The average rate of tax you pay across all your income, calculated by dividing your total tax bill by your gross income.
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.
Personal Allowance Taper
The gradual withdrawal of the Personal Allowance for people with adjusted net income above £100,000, reducing it by £1 for every £2 of income above that level.
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