What a Pay Rise Is Really Worth After Tax

A pay rise is taxed at your marginal rate, the combined rate on your top pounds, not your average rate. For most employees in England, Wales and Northern Ireland that's 28% (20% tax plus 8% National Insurance) on pay between £12,570 and £50,270, and 42% above it, before any student loan. Between £100,000 and £125,140 it's 62%, because you lose your Personal Allowance as you earn more. Pension contributions can take you out of that band, which makes a rise in that range one of the best times to pay more into your pension.

Your marginal rate, by band

These are the 2026/27 figures from our take-home pay calculator for someone in England, with no pension contribution. Scottish taxpayers pay different income tax bands, including 42% above £43,662, so run the calculator with Scotland selected.

Look at the middle row. A Plan 2 graduate on £55,000 keeps less than half of a rise: 40% income tax, 2% National Insurance and 9% student loan. GOV.UK sets the Plan 2 repayment threshold at £29,385 for 2026/27, with 9% taken above it, so this graduate's 51% marginal rate is higher than anything a non-graduate pays below £100,000.

That loan deduction isn't quite like tax, though. Plan 2 loans are written off 30 years after the April you were first due to repay. If you're unlikely to clear yours, extra repayments bring the write-off no closer; they just mean less is written off. Our student loan calculator shows whether you're likely to repay in full.

The 60% trap between £100,000 and £125,140

According to GOV.UK, your Personal Allowance goes down by £1 for every £2 of income above £100,000, and is zero once income reaches £125,140. So each extra £1 in that band is taxed at 40%, and also removes 50p of allowance, which is then taxed at 40% too. That's 60% income tax, plus 2% National Insurance.

In the table, the £10,000 rise from £100,000 to £110,000 adds £6,000 of income tax and £200 of National Insurance. Take-home rises by just £3,800. Above £125,140 the rate settles at 45% income tax plus 2% NI.

The taper is based on 'adjusted net income', not salary. HMRC's adjusted net income guidance says pension contributions come off: the gross amount for relief at source schemes (take £1.25 off for every £1 you pay), and contributions made before tax are already excluded from taxable pay. That's the lever.

Using your pension to keep the rise

Same person, same £110,000 salary, but they put £10,000 of it into their pension through salary sacrifice. The calculator gives take-home pay of £68,557.40, exactly what they had on £100,000 before the rise, and £10,000 goes into their pension. Compare:

• Take the rise as pay: £3,800 more in your account.
• Sacrifice the rise into your pension: no extra take-home, £10,000 more in your pension.

Put simply, giving up £3,800 of spending money buys £10,000 of pension, because the other £6,200 would have gone in tax and National Insurance. Through a net pay scheme the result is nearly the same: take-home of £68,357.40, because you still pay National Insurance on the £10,000. With relief at source you'd pay in £8,000, the provider adds £2,000, and you claim the remaining relief through Self Assessment. Our pension contribution calculator shows the numbers for your scheme.

Two limits apply. The annual allowance for pension contributions is £60,000 this tax year, including your employer's payments. And HM Treasury has announced that from April 2029 only the first £2,000 a year of salary sacrifice will be free of National Insurance, which shrinks the NI saving but leaves the income tax saving intact.

The other traps

Child Benefit. If you or your partner get Child Benefit, GOV.UK's High Income Child Benefit Charge takes back 1% for every £200 of adjusted net income over £60,000, and all of it at £80,000. A rise across that range can cost far more than the table above suggests. Pension contributions reduce adjusted net income here too.

Your tax code. PAYE catches up with a rise automatically, but if HMRC is estimating other income or benefits in your code, those estimates may now be taxed at a higher rate. Check your code after the first raised payslip.

A bonus that crosses a line. The taper and the Child Benefit charge look at your income for the whole tax year, not just your salary. A one-off bonus that takes you over £100,000 or £60,000 triggers them just as a pay rise would, and in some schemes you can sacrifice a bonus into your pension too. Ask before it's paid, not after.

Budgeting the gross figure. A £5,000 rise at £55,000 on Plan 2 is about £204 a month, not £417. Put the real figure into the 50/30/20 budget calculator.

What to do before the rise lands

1. Next 10 minutes: run your current and new salary through the take-home pay calculator, with your student loan plan and pension method selected.
2. Today: if the new salary is over £60,000 with Child Benefit, or over £100,000, work out the pension contribution that brings your adjusted net income back under the line.
3. This week: ask HR whether you can change your pension or salary sacrifice percentage before the rise takes effect.

When pensioning the rise is the wrong call

The 60% argument assumes you won't need the money until you can draw a pension, which is 55 now and 57 from April 2028 under HMRC's rules. If you're saving for a house deposit, have no emergency fund, or carry expensive debt, £3,800 you can use now may be worth more to you than £10,000 you can't touch for decades. It also matters that salary sacrifice lowers your contractual salary, which can affect things calculated from it. At this income, the sums are large enough that a regulated financial adviser can pay for themselves.

Sources

1. GOV.UK (HM Revenue & Customs): Income Tax rates and Personal Allowances: Income over £100,000
2. GOV.UK (HM Revenue & Customs): Personal Allowances: adjusted net income
3. GOV.UK: High Income Child Benefit Charge
4. GOV.UK: Repaying your student loan: What you pay