Tax year 2025‑26
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How Much of a Pay Rise Do You Actually Keep?

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.

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