You get a 5% pay rise. Brilliant. But here's the thing: 5% more gross salary doesn't translate into 5% more money hitting your bank account. The gap between what you're offered and what you keep gets wider the more you earn. At certain salary levels, you'll lose more than half of every extra pound to tax and National Insurance before it ever reaches you.
Let's break down exactly how much of a pay rise you actually take home, at every income level from £25,000 to £120,000.
Your entire pay rise sits on top of what you already earn. That means it's taxed at your marginal rate, not your average rate. If you're already earning £45,000, the next pound you earn is taxed at 40% income tax plus 2% National Insurance. You keep 58p of it.
Here's how marginal deductions stack up in 2026/27:
So a 5% rise on a £30,000 salary (£1,500 extra gross) gives you about £1,080 extra take-home. That's 72% kept. Not bad.
But a 5% rise on £50,000 (£2,500 extra)? Only about £1,500 reaches your account, because part of it falls into the higher-rate band. You keep roughly 60%.
And a 5% rise on £100,000 (£5,000 extra)? You'd keep as little as £1,900, because almost all of it falls inside the Personal Allowance taper zone. That's only 38% kept.
This is the bit that catches people out. Between £100,000 and £125,140, you lose £1 of Personal Allowance for every £2 you earn above £100K. That lost allowance effectively acts as an extra 20% tax on top of the 40% you're already paying. Add 2% NI and you're handing over 62p of every pound earned in that band.
Let's put real numbers on it. Say you earn £100,000 and your employer offers you a £5,000 rise to £105,000. Here's what happens to that £5,000:
That's a 62% effective tax rate. Your £5,000 "pay rise" puts £1,900 in your pocket. And if your employer phrases it as a 5% increase, it sounds generous. But you're keeping less than 2% in real take-home terms relative to your overall salary.
By the time you reach £125,140, your entire £12,570 Personal Allowance is gone. Above that level, the rate drops back to 47% (45% tax + 2% NI). Perversely, someone earning £130,000 has a lower marginal rate than someone earning £110,000.
If you're repaying a student loan, another chunk disappears before you see it. Plan 2 (the most common for anyone who started university in England after 2012) takes 9% of everything you earn above £27,295.
For a basic-rate taxpayer with Plan 2, that means every extra pound above £27,295 costs you: 20% tax + 8% NI + 9% student loan = 37%. You keep 63p.
For a higher-rate taxpayer with Plan 2: 40% tax + 2% NI + 9% student loan = 51%. You keep 49p. Less than half.
And if you're in the taper zone between £100K and £125,140 with Plan 2 still running? That's 62% + 9% = 71% gone. You keep 29p of each extra pound. A £5,000 pay rise nets you £1,450.
Plan 1 repayments (pre-2012 loans) take 9% above £24,990. Plan 5 (post-2023 loans) takes 9% above £25,000. The threshold differs but the 9% rate is the same across all plans.
Postgraduate loan adds another 6% above £21,000. If you've got both Plan 2 and a postgraduate loan, that's 15% in loan repayments alone, on top of tax and NI.
Most workplace pensions operate through salary sacrifice or net pay arrangements. Either way, your pension contribution comes out before income tax (and sometimes before NI too).
So if you contribute 5% to your pension via salary sacrifice, a £2,000 pay rise means an extra £100 going into your pension pot. That £100 never gets taxed. You don't see it in your bank account, but it's still yours, just locked away until you're 57 (or 58 from 2028).
If your employer matches contributions, a pay rise automatically increases their contribution too. On a 5% match, that same £2,000 rise puts another £100 from your employer into your pension. That's £200 total pension gain from the rise, on top of whatever reaches your bank account.
For higher earners, especially those near the £100K threshold, increasing pension contributions is one of the few ways to avoid the 62% trap. If you salary sacrifice enough to bring your adjusted net income below £100,000, you get your full Personal Allowance back. That's worth £5,028 in tax relief (£12,570 × 40%). A £5,000 pension contribution that drops you from £102,000 to £97,000 saves you roughly £2,000 in tax on top of the normal higher-rate relief. The maths works out extremely well.
Here's what happens to a flat £2,000 gross pay rise at different salary levels (2026/27 rates, no student loan, no pension for simplicity):
| Current salary | Tax on rise | NI on rise | Net extra | % kept |
|---|---|---|---|---|
| £25,000 | £400 | £160 | £1,440 | 72% |
| £35,000 | £400 | £160 | £1,440 | 72% |
| £50,000 | £746 | £94 | £1,160 | 58% |
| £60,000 | £800 | £40 | £1,160 | 58% |
| £80,000 | £800 | £40 | £1,160 | 58% |
| £100,000 | £1,200 | £40 | £760 | 38% |
| £120,000 | £1,200 | £40 | £760 | 38% |
The £50,000 row is interesting. Part of a £2,000 rise at that salary crosses the higher-rate threshold (£50,270). So about £1,730 of it is taxed at 20%+8% and the remaining £270 at 40%+2%. The blended result lands around 58% kept overall.
And look at the £100,000 and £120,000 rows. Both lose 62% because both fall entirely within the Personal Allowance taper zone. The taper runs from £100,000 to £125,140, so a £2,000 rise at £120K still sits inside it.
Here's something worth thinking about during salary negotiations. A pay rise increases your permanent base salary. Every year going forward, you'll be taxed on that higher amount. But there are alternatives that might leave more in your pocket.
One-off bonuses are taxed at the same marginal rate as salary in the month they're paid. There's no tax advantage to a bonus versus salary in that sense. But a bonus doesn't permanently increase your base, which means it doesn't lock you into a higher tax bracket year after year. If your income fluctuates, a bonus in a lower-earning year could be taxed at a lower rate than a permanent rise would be.
Pension contributions via salary sacrifice are the big one. If your employer offers to put extra into your pension instead of giving you a pay rise, the money goes in before tax AND before National Insurance. On a £2,000 rise at the higher rate, you'd keep £1,160 in your bank account. But if that £2,000 goes into your pension via salary sacrifice, the full £2,000 goes in. Your employer also saves the 13.8% employer NI (£276), and some employers pass part of that saving to you as extra pension. So you could end up with £2,200 in your pension versus £1,160 in your pocket. You can't spend it now, but it's a 90% bigger number.
Benefits in kind like extra holiday, flexible working, or training budgets have no income tax or NI attached (with some exceptions). Five extra days of holiday has a salary-equivalent value but costs you nothing in tax. Worth considering if the cash difference between two offers is small.
The table above uses simplified figures. Your real situation depends on where exactly your salary sits relative to the thresholds, whether you have student loans, your pension contribution rate, and whether you're in Scotland (which has 6 income tax bands with different rates).
Scottish taxpayers face slightly different maths. The intermediate rate of 21% kicks in at £14,877, and the higher rate of 42% starts at £31,093 rather than £50,270. So a Scottish employee on £35,000 is already paying 42% on part of their income, whereas an English employee at the same salary is entirely within the 20% band.
The easiest way to see the precise impact of a pay rise on your take-home is to run two calculations: one at your current salary, one at your new salary, and compare the monthly take-home figures.
Check the exact difference with our calculator
Use our salary calculatorAt £30,000, you keep 72p of every extra pound. At £60,000, you keep 58p. At £105,000, you keep just 38p. The jump from basic to higher rate costs you 14p per pound. But the jump into the taper zone costs you another 20p on top of that.
If you're anywhere near £100,000, talk to your employer about pension sacrifice before accepting a straightforward pay rise. The tax maths at that level makes pension contributions absurdly efficient.
And if you've got a student loan on top of all this, your marginal rate is 9 percentage points higher than the figures above. A higher-rate taxpayer with Plan 2 keeps less than half of every extra pound. That doesn't mean you should turn down a pay rise. It just means you should know exactly what you're getting, and whether there's a smarter way to structure it.
Figures based on 2026/27 HMRC rates. Income tax thresholds: Personal Allowance £12,570, basic rate band £12,571 to £50,270, higher rate £50,271 to £125,140, additional rate above £125,140. National Insurance: 8% between £12,570 and £50,270, 2% above £50,270. Student loan Plan 2: 9% above £27,295.