How Much of a Pay Rise Do You Actually Keep?

Q: How much of a pay rise do I keep if I am a basic-rate taxpayer?

As a basic-rate taxpayer (earnings between £12,570 and £50,270), you pay 20% income tax and 8% National Insurance on each extra pound earned. That is 28p in deductions for every £1 of pay rise — meaning you keep 72p in the pound. On a £2,000 pay rise, you take home an additional £1,440 per year (£120 per month). The deduction applies to every pound in the basic rate band, regardless of whether the rise is large or small.

Q: How much of a pay rise do I keep if I am a higher-rate taxpayer?

Higher-rate taxpayers (earnings above £50,270) pay 40% income tax and 2% NI on each additional pound — 42p in total deductions, leaving 58p in the pound. On a £5,000 pay rise entirely within the higher rate band, you take home £2,900 extra per year (£242 per month). If your pay rise straddles the £50,270 boundary, the portion below it is taxed at 28% and the portion above at 42%.

Q: What is the most tax-efficient way to take a pay rise?

If your salary is near the higher rate threshold (£50,270) or near £100,000 (where the 60% trap begins), directing part of a pay rise into pension contributions via salary sacrifice can dramatically improve your effective take-home. On a salary of £52,000, for example, sacrificing £1,730 into a pension keeps your income just below the higher rate band — and the pension contribution effectively costs you only 28p per £1 instead of 42p, while the full £1 goes into your pension. This is especially powerful near the £100,000 threshold where the effective marginal rate is 62%.

A £3,000 pay rise sounds great — but how much actually lands in your bank account? The answer depends entirely on your current salary and which tax bands the rise falls into in 2025-26.

The Concept of Marginal Rate

The marginal tax rate is what you pay on the next pound of income — not an average across all your earnings. This is the number that matters when evaluating a pay rise. UK workers face different marginal rates depending on where their income sits:

Below £12,570 (Personal Allowance): 0% IT + 0% NI = keep 100p
£12,570–£50,270 (Basic Rate): 20% IT + 8% NI = keep 72p in the £1
£50,270–£100,000 (Higher Rate): 40% IT + 2% NI = keep 58p in the £1
£100,000–£125,140 (60% Trap): 60% IT effective + 2% NI = keep 38p in the £1
Above £125,140 (Additional Rate): 45% IT + 2% NI = keep 53p in the £1

The Basic Rate Band: 28% Marginal Rate

For most UK workers — those earning between £12,570 and £50,270 — every additional pound of pay is deducted 20% for income tax and 8% for National Insurance. Total deduction: 28%. You keep 72p.

This means a £2,000 pay rise for a £30,000 earner results in:

Gross increase: £2,000/year
Income tax on rise: £2,000 × 20% = £400
NI on rise: £2,000 × 8% = £160
Net benefit: £1,440/year (£120/month)

The Higher Rate Band: 42% Marginal Rate

Once earnings exceed £50,270, income tax rises to 40% but NI drops to 2% — giving a combined marginal rate of 42%. You keep 58p per £1.

Example: a £5,000 pay rise for a £55,000 earner (all within the higher rate band):

Gross increase: £5,000/year
Income tax on rise: £5,000 × 40% = £2,000
NI on rise: £5,000 × 2% = £100
Net benefit: £2,900/year (£242/month)

Straddling the £50,270 Threshold

If your pay rise takes you from below to above the £50,270 boundary, the tax calculation splits. Example: salary rises from £48,000 to £53,000 (+£5,000):

First £2,270 (up to £50,270): 28% deduction → keep £1,634
Remaining £2,730 (above £50,270): 42% deduction → keep £1,583
Net benefit: £3,217/year (£268/month)
Effective rate on rise: 35.7%

The £100,000–£125,140 Zone: 62% Effective Marginal Rate

For earners in this range, a pay rise is startlingly expensive in tax terms. The Personal Allowance tapers away at £1 for every £2 earned above £100,000, creating an effective 60% income tax rate, plus 2% NI = 62% total. You keep just 38p per £1.

A £5,000 pay rise from £100,000 to £105,000 nets you approximately £1,900 — the rest going to HMRC. Many workers in this zone choose to redirect pay rises into pension contributions to avoid the trap entirely.

Pay Rise Net Benefit: Five Scenarios

Current Salary	Pay Rise	Marginal Rate	Net Annual Increase	Net Monthly Increase
£25,000	£2,000	28%	£1,440	£120
£35,000	£3,000	28%	£2,160	£180
£48,000 → £53,000	£5,000	28–42% (blended 35.7%)	£3,217	£268
£60,000	£5,000	42%	£2,900	£242
£100,000	£5,000	62%	£1,900	£158

Using Salary Sacrifice to Maximise Your Pay Rise

If a pay rise would push you into a higher band — or deeper into the 60% trap — directing some or all of the rise into a pension via salary sacrifice can be far more efficient. The mechanism: your employer increases your salary, but you immediately sacrifice the extra amount as a pension contribution. You never pay income tax or NI on that portion, and the full amount enters your pension.

Example: Near the Higher Rate Threshold

Your salary is £49,000 and you receive a £3,000 rise. Taking it as salary means £1,730 (the portion above £50,270) is taxed at 42% rather than 28%. Alternative: sacrifice the full £3,000 into pension. The pension grows by £3,000 — the same as if you had been a basic-rate taxpayer, but you pay zero tax on the sacrifice in the current year. Effective pension contribution cost to you: zero (assuming you would have earned the £3,000 anyway).

Near the £100,000 Threshold

Every £1 of income above £100,000 costs 62p in deductions. Directing a rise into pension contributions instead restores Personal Allowance — turning a 62% effective rate on the next £25,140 back to an effective rate close to 20%. This is one of the most powerful tax planning opportunities available to high earners.

Frequently Asked Questions

How much of a pay rise do I keep if I am a basic-rate taxpayer?

72p in the pound. Your combined marginal rate is 28% (20% income tax + 8% NI). On a £2,000 rise, you keep £1,440 per year — £120 per month extra in your bank account.

How much of a pay rise do I keep if I am a higher-rate taxpayer?

58p in the pound. Your combined marginal rate is 42% (40% income tax + 2% NI). On a £5,000 rise entirely within the higher rate band, you keep £2,900 per year.

What is the most tax-efficient way to take a pay rise?

Near tax band boundaries, directing part of a pay rise into pension contributions via salary sacrifice is often far more efficient. Near the £50,270 threshold, you avoid a jump from 28% to 42% marginal rate. Near £100,000, you avoid the 62% effective marginal rate in the Personal Allowance taper zone.