Marginal Tax Rate
Plain-English definition of Marginal Tax Rate — part of our UK tax glossary.
Definition
Your marginal tax rate is the rate you pay on the next pound you earn — not the average rate you pay overall. For a £45,000 earner, the marginal rate is 20% income tax + 8% NI = 28%. For a £60,000 earner it jumps to 40% + 2% = 42%. Understanding this is essential for decisions about bonuses, pension contributions, and salary sacrifice.
Worked example
At a gross salary of £55,000, your average tax rate is ~24%. But the next £1,000 of bonus is taxed at 42% (40% income tax + 2% NI). This is why pension sacrifice at higher-rate is so valuable — you route pounds away from the 42% layer.
Why it matters
UK tax thresholds are full of cliff edges — the 60% trap between £100k and £125k, the FTB stamp duty relief above £625k, child benefit tapers — and the marginal rate you actually face at any given moment is rarely the headline number. Knowing the vocabulary lets you run the right calculation before a bonus, a house move, or a pension contribution.
Common mistake
Treating tax bands as averages rather than marginal rates. An extra pound of gross salary in the 40% band costs 42% at the margin (tax + NI), and inside the £100k taper it effectively costs 60%. The average tax rate on the payslip is not what you will pay on the next pound.
Calculators that use this concept
Go deeper
See also
- National Insurance (NI) — National Insurance is a UK tax funding state pensions and certain benefits. Employees pay 8% on earnings betwe…
- Personal Allowance — The Personal Allowance is the amount of income you can earn each tax year before paying UK income tax — curren…
- Capital Gains Tax (CGT) — CGT is the UK tax on profit when you sell assets (shares, second properties, crypto). The annual CGT allowance…
- Salary Sacrifice — An arrangement where you give up part of your gross salary in exchange for a non-cash benefit (usually pension…