A £5,000 pay rise sounds brilliant — but it doesn’t mean £5,000 more in your pocket. After Income Tax, National Insurance, and potentially student loan repayments, you might keep less than two-thirds of the headline figure. This calculator and guide help you understand exactly how much of your raise you’ll actually take home, so you can plan your finances with confidence.
How a Pay Rise Is Taxed in the UK
The UK uses a marginal tax system, which means only the additional income from your pay rise is taxed at higher rates — not your entire salary. If your rise pushes you from the basic rate into the higher-rate band, only the portion above the threshold is taxed at 40%, not everything you earn.
This is one of the most common misconceptions about pay rises. You will always take home more money after a raise, even if part of it falls into a higher bracket.
2025/26 Tax Bands and Effective Marginal Rates
| Band | Income | Tax Rate | NI Rate | Effective Marginal Rate |
|---|---|---|---|---|
| Personal Allowance | Up to £12,570 | 0% | 0% | 0% |
| Basic rate | £12,571–£50,270 | 20% | 8% | 28% |
| Higher rate | £50,271–£125,140 | 40% | 2% | 42% |
| Personal Allowance trap | £100,000–£125,140 | 40% (+20% effective) | 2% | ~62% |
| Additional rate | Over £125,140 | 45% | 2% | 47% |
The “effective marginal rate” shows the combined percentage lost to Income Tax and National Insurance on each extra pound earned. This is the figure that matters when calculating your actual take-home from a pay rise.
Worked Example 1: Basic-Rate Taxpayer
Current salary: £35,000 | Pay rise: £3,000 | New salary: £38,000
The entire £3,000 increase falls within the basic-rate band (£12,571–£50,270), so:
- Extra Income Tax: £3,000 × 20% = £600
- Extra National Insurance: £3,000 × 8% = £240
- Take-home increase: £3,000 − £600 − £240 = £2,160/year (£180/month)
You keep 72% of the raise. Not bad — but noticeably less than the headline figure.
Worked Example 2: Crossing into the Higher-Rate Band
Current salary: £49,000 | Pay rise: £5,000 | New salary: £54,000
This rise straddles two tax bands. The first £1,270 stays within basic rate; the remaining £3,730 is taxed at the higher rate.
| Portion | Amount | Tax | NI | Deduction | Net |
|---|---|---|---|---|---|
| Basic rate (up to £50,270) | £1,270 | £254 (20%) | £101.60 (8%) | £355.60 | £914.40 |
| Higher rate (£50,271+) | £3,730 | £1,492 (40%) | £74.60 (2%) | £1,566.60 | £2,163.40 |
| Total | £5,000 | £1,746 | £176.20 | £1,922.20 | £3,077.80 |
Take-home increase: £3,077.80/year (≈£256.48/month). You keep about 61.6% of this rise — still a meaningful boost, but well under the headline figure.
The £100,000 Tax Trap Explained
If your salary is near £100,000, be especially careful. Between £100,000 and £125,140, your Personal Allowance (£12,570) is gradually withdrawn: you lose £1 of allowance for every £2 earned over £100,000. This creates an effective marginal tax rate of around 62% (40% Income Tax + ~20% from the lost allowance + 2% NI).
A £1,000 pay rise in this band nets you roughly £380 after deductions — and if you have a student loan, even less.
Strategies to avoid the £100K trap
- Increase pension contributions via salary sacrifice to bring your adjusted income below £100,000
- Make charitable donations using Gift Aid, which extends your basic-rate band
- Negotiate non-cash benefits that don’t count as taxable income
These approaches can save you thousands each year if you’re caught in this band.
How a Pay Rise Affects Student Loan Repayments
Student loan repayments are 9% of income above the threshold (6% for Postgraduate Loans). If your pay rise takes you further above your plan’s threshold, your repayments will increase:
| Plan | Threshold (2025/26) | Rate |
|---|---|---|
| Plan 1 (pre-2012) | £24,990 | 9% |
| Plan 2 (post-2012) | £27,295 | 9% |
| Plan 4 (Scotland) | £31,395 | 9% |
| Plan 5 (post-2023) | £25,000 | 9% |
| Postgraduate Loan | £21,000 | 6% |
If you’re on multiple plans, deductions are assessed simultaneously — so a £1,000 rise could mean an additional £90 for your undergraduate loan and £60 for a postgraduate loan, totalling £150/year on top of tax and NI.
What to Do with a Pay Rise
Rather than letting lifestyle creep absorb your extra income, consider these steps in order:
- Increase pension contributions — especially via salary sacrifice, which saves both Income Tax and National Insurance. Your employer may also benefit from lower NI costs and pass some of that saving on to you.
- Pay off high-interest debt — credit cards, store cards, and overdrafts charging 20%+ should be cleared before anything else.
- Maximise your ISA allowance — the annual limit is £20,000/year, and all growth within an ISA is completely tax-free.
- Build an emergency fund — aim for 3–6 months’ essential living expenses in an easy-access savings account.
A disciplined approach to your raise now can compound into significant wealth over time.
Related Tools and Guides
- Take-Home Pay Calculator — See your full salary breakdown for the current tax year
- Income Tax Guide — Understand how the UK tax system works in detail
- Salary Sacrifice Guide — Learn how salary sacrifice can boost your pension and cut your tax bill
- National Insurance Guide — A complete breakdown of NI rates and thresholds for 2025/26