What Is Marginal Tax Rate?
By PayMetric Labs Research Desk
Short answer
Your marginal tax rate is the percentage taken from the next pound you earn, as opposed to your effective rate, which is the average rate across all of your income.
These two numbers get confused constantly, and the difference matters for decisions. Your effective rate tells you what proportion of your total income disappears in tax overall. Your marginal rate tells you what happens to your next pay rise, bonus, or extra hour of contracting: it's the rate on the last slice of income you earn, not an average.
In the UK, marginal rates step up as you cross thresholds: roughly 28% (20% Income Tax + 8% NI) in the basic band, 42% (40% + 2%) once you cross £50,270, then a spike to around 60-62% in the £100,000-£125,140 Personal Allowance taper zone, before settling at 47% (45% + 2%) above £125,140. In Ireland, the combined marginal rate for a high earner runs to roughly 52.2% (40% Income Tax + 8% USC + 4.2% PRSI).
Marginal rate is the number that should actually drive decisions like whether a pay rise, bonus, or extra contract day is worth it after tax, and it's also what determines how valuable a pension contribution is: a pension payment at a 42% marginal rate saves you more per pound than one at 28%.
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This glossary entry is for general information only and does not constitute financial, tax, or legal advice. Rates and thresholds shown reflect current published guidance and may change.