Why Your Bonus May Be Taxed at 40%, 45% or More in England
By Team SalaryCalculate · 7/21/2025
Why Your Bonus May Be Taxed at 40%, 45% or More in England
You've worked hard all year, put in some extra hours, met your targets and now your boss has dropped a lovely bonus in your bank account. But wait, why is the taxman taking such a big chunk? Did he do the late nights too? Let's delve a bit deeper into how bonuses are taxed in England and why yours might be taxed at 40%, 45% or more.
The Basics of Bonus Taxation (2025/26)
Bonuses are treated as taxable income, just like your regular salary. When you receive a bonus, it’s added to your total annual income and taxed based on standard income tax bands. While the bonus itself isn’t taxed differently, it can push your total income into a higher tax bracket, meaning a larger portion of it may be taxed at a higher rate.
For the 2025/26 tax year (6 April 2025 – 5 April 2026), income tax rates in England are:
- Up to £12,570 – Personal Allowance: 0% tax
- £12,571 to £50,270 – Basic Rate: 20% tax
- £50,271 to £125,140 – Higher Rate: 40% tax
- Over £125,140 – Additional Rate: 45% tax
Sources:
⚠️ Beware the £100,000–£125,140 “Taper Zone”
If your total income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 earned above this threshold. This means:
- By £125,140, your full allowance is lost.
- The effective marginal tax rate in this band becomes 60%, due to both the 40% higher rate and the lost allowance.
Additional reading:
Why Bonuses Can Increase Your Tax Bill
Because bonuses are added to your annual salary, they can:
- Push you into the 40% or 45% tax band
- Trigger Personal Allowance tapering, causing an unexpected tax hit
- Affect other calculations like Child Benefit charges or pension contribution limits
Example: £90,000 Salary + £20,000 Bonus
- Total income = £110,000
- Personal Allowance lost = £5,000 (because £10,000 is over the £100k threshold → lose £1 for every £2)
- New allowance = £12,570 – £5,000 = £7,570
- Taxable income = £110,000 – £7,570 = £102,430
- £0–£50,270 taxed at 20%
- £50,271–£102,430 taxed at 40%
- £100,000–£110,000 zone incurs an effective 60% marginal rate due to tapering
When Bonus Pushes You over £100,000 in England
Here's a real gotcha. If your bonus pushes your income over £100,000 for the year, you lose your personal allowance (£12,570 for 2021/22), or part of it. This change happens incrementally, with £1 of your personal allowance removed for every £2 you earn over £100,000. As a result, if you earn more than £125,140, your personal allowance becomes nil. You can get more details about how this works on our post about how a bonus can affect your Pay As You Earn (PAYE) in England.
This effectively increases your tax rate and you end up in a bizarre situation where you could be taxed at up to 60% on part of your income. A hefty bite, to be sure!
Should You Defer Your Bonus to the New Tax Year?
So, you might be wondering if deferring your bonus to the next tax year is a good option to avoid being pushed into a higher tax bracket. This could be a good strategy if you're close to the edge of your current tax band but it's also worth considering your projected income for the next year. Will you still end up in this situation again?
Before making a decision, use our net salary calculator to model different scenarios and make an informed choice. Also, check out our in-depth blog post on whether deferring your bonus to the new tax year in England makes sense for your situation.
It's Not All Doom and Gloom
Despite the potentially high tax rate, it's worth remembering that a bonus is an additional payment on top of your regular earnings, not instead of it. So even if the taxman takes a larger slice, you're still ending up with more money in your pocket overall.
To optimise how you handle your bonus and its tax implications, it may be beneficial to seek advice from a qualified tax professional or financial adviser who can tailor advice based on your individual circumstances.
So, there you have it! While it might seem a bit tough to see your bonus taxed at 40%, 45% or higher, it's just a part of how things work when it comes to tax in England. Still, with a bit of forward planning, you can make the most out of it.
FAQs
Why is my bonus taxed so much?
Bonuses are regarded as income and are, therefore, subject to income tax. If your bonus pushes you into a higher tax bracket, a larger percentage of it may be taxed.
Can I reduce the tax on my bonus?
You might be able to reduce your tax liability by deferring your bonus or making contributions to a pension scheme. It's a good idea to seek advice from a tax professional or financial adviser.
What happens if my bonus pushes me over £100,000?
When your total income exceeds £100,000, you lose all or part of your personal allowance, which effectively raises your tax rate. Check out this article for more info.
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Bonus Tax Calculator for England – How Much Will You Keep?
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What Happens If Your Bonus Pushes You Over £100,000 in England?
Crossing the £100,000 income line? Your bonus could come at a bigger tax cost than you expect. In the UK, once your income exceeds £100,000, you start losing your personal allowance—making this threshold a hidden tax trap. If your bonus pushes you above this line, your effective tax rate on part of that income could soar to 60%. In this article, we unpack how bonuses are taxed at higher income levels, what happens to your tax-free allowance, and whether deferring your bonus might be a smart move. Get clarity with practical advice, examples, and links to bonus and net pay calculators designed for England.