Submitted by Bill Fernie
22nd July 2026
Whenever income tax is discussed, one misunderstanding appears again and again.
"Once you move into a higher tax band, all your income is taxed at that higher rate."
That is not how the UK tax system works.
Income tax is a progressive system, meaning different portions of income are taxed at different rates.
However, because the system can be complicated, many people misunderstand what higher-rate tax actually means.
How tax bands really work
Imagine your income being placed into layers.
The first layer is covered by your tax-free allowance (where applicable).
The next layer is taxed at the basic rate.
Only the part of your income above the higher-rate threshold is taxed at the higher rate.
Moving into a higher tax band does not mean your whole income suddenly faces that rate.
A simple example
Suppose someone earns £60,000.
They do not pay the higher rate on all £60,000.
They pay:
no tax on the personal allowance;
basic-rate tax on income within the basic band;
higher-rate tax only on the part above the higher-rate threshold.
The important point is that earning an extra pound can never leave someone worse off simply because they have entered a higher tax band.
The famous "60% tax rate"
The discussion becomes more complicated for people earning above £100,000.
Commentators often refer to a "60% tax rate".
This is not an official tax band.
It occurs because two things combine:
higher-rate income tax; and
the withdrawal of the personal allowance as income rises above £100,000.
The effect is that, for a limited range of income, each extra pound can result in 60 pence being lost through tax and reduced allowance.
The statement is technically correct.
However, saying someone "pays 60% tax" without explaining the context can give a misleading impression because it does not apply to their entire income.
The same misunderstanding applies to the highest tax rates
The highest income tax rate in the UK is another example.
A person paying the additional rate does not pay that rate on all their earnings.
They pay it only on the income above the relevant threshold.
Yet discussions often suggest that someone earning a high income hands over the top rate on everything they earn.
Again, the reality is more complicated.
A lesson from history
Britain has seen much higher headline tax rates in the past.
In the 1970s, the top rate of income tax reached 83%, with an additional investment income surcharge that meant some investment income could face a headline rate approaching 98%.
However, the tax system of that era was very different.
There were also:
different allowances;
different reliefs;
different treatment of investment income;
and various ways that taxable income could be reduced.
The headline rate alone did not tell the whole story.
The modern issue: fiscal drag
Today, the debate is less about extremely high tax rates and more about frozen thresholds.
When tax allowances and bands do not rise with inflation, more people gradually move into paying tax or higher-rate tax as their wages increase.
This is known as fiscal drag.
For many ordinary workers, this may be a bigger issue than the headline top rates.
The real tax debate
The question for governments is not simply:
"Are tax rates too high or too low?"
The bigger questions are:
Who should contribute most?
How much revenue is needed for public services?
Should lower earners receive more protection?
Should tax changes encourage work and investment?
Is the system fair and understandable?
The bottom line
A marginal tax rate tells you what happens to your next pound of income.
It does not tell you the percentage of your total income that you pay in tax.
Understanding that difference is essential if we are going to have a sensible debate about taxation.