How much tax will I pay on my first salary UK?

You pay no income tax on the first £12,570 you earn (your Personal Allowance). Earnings between £12,570 and £50,270 are taxed at 20% (basic rate). You also pay National Insurance at 8% on earnings above £12,570. On a £28,000 salary, your take-home pay after tax, NI, student loan repayment, and a 5% pension contribution would be roughly £1,780 per month.

When do I start repaying my student loan?

For Plan 5 loans (started university from September 2023), you repay 9% of earnings above £25,000 per year. Repayments are deducted automatically from your salary by your employer once your income exceeds the threshold. If you started before September 2023 you may be on Plan 2 (threshold £27,295). Check your plan type at gov.uk.

Should I opt out of my workplace pension?

Almost never. Your employer must contribute at least 3% of your qualifying earnings and you contribute 5% — that is an instant 60%+ boost to your money. Even on a modest salary, this adds up significantly over a career. The earlier you start, the more compound growth works in your favour. If you opt out, you lose the employer contribution entirely.

How much should I save from my first salary?

Aim to build an emergency fund of 3 months' essential expenses first (typically £3,000–£5,000). After that, saving 10–20% of your take-home pay is a good target. Even £100–£200 per month makes a meaningful difference over time. Use a separate savings account and set up an automatic transfer on payday.

First Salary Money Setup Guide for New Graduates UK

Starting your first proper job is exciting — and a bit overwhelming. Here is a practical, no-nonsense guide to setting up your finances from day one, so you avoid common mistakes and build good habits early.

Understanding Your Payslip

Payslip item	What it means
Gross pay	Your total pay before any deductions
Income tax	Tax on earnings above £12,570 (at 20% basic rate)
National Insurance	8% on earnings above £12,570
Pension contribution	Usually 5% of qualifying earnings (auto-enrolled)
Student loan repayment	9% of earnings above your repayment threshold
Net pay (take-home)	What actually hits your bank account

Take-Home Pay Examples (2026/27)

Gross salary	Income tax	NI (8%)	Pension (5%)	Student loan (Plan 5)	Monthly take-home
£25,000	£2,486	£994	£626	£0	~£1,741
£28,000	£3,086	£1,234	£776	£270	~£1,886
£32,000	£3,886	£1,554	£976	£630	~£2,079
£35,000	£4,486	£1,794	£1,126	£900	~£2,224

These are approximate — your exact figures depend on your tax code, pension scheme, and student loan plan.

First Month Financial Setup

Step	Action	When
1	Open a current account (if you don’t have one)	Before starting work
2	Provide bank details and P45 (if you have one) to your employer	Day 1
3	Check your tax code (should be 1257L for 2026/27)	First payslip
4	Set up a budget using your actual take-home pay	After first payslip
5	Open a separate savings account	Month 1
6	Set up automatic savings transfer on payday	Month 1
7	Check your pension auto-enrolment	Within 3 months
8	Register for online tax account (gov.uk Personal Tax Account)	Month 1

Tax Code Explained

Tax code	What it means
1257L	Standard — you get £12,570 tax-free allowance
BR	Emergency — all earnings taxed at 20% (no allowance applied)
0T	Emergency — no allowance applied
W1 or M1 suffix	Emergency — tax calculated on each pay period only

If your code is NOT 1257L, you may be on an emergency tax code. This is common for your first job. Contact HMRC (0300 200 3300) to fix it. Overpaid tax will be refunded automatically once corrected.

Student Loan Repayment

Plan	Threshold (2026/27)	Repayment rate	Written off after
Plan 1 (started before 2012)	£24,990	9% above threshold	Age 65 or 25 years
Plan 2 (2012–2023)	£27,295	9% above threshold	30 years
Plan 5 (from September 2023)	£25,000	9% above threshold	40 years
Postgraduate Loan	£21,000	6% above threshold	30 years

Should You Overpay Your Student Loan?

Your situation	Should you overpay?
Earning under £40,000	Almost certainly NOT — most graduates never repay the full amount and the debt is written off
Expect to earn £50,000+ within a few years	Possibly — do the maths or use an online calculator
Plan 5 loan (40-year term)	Very unlikely to benefit from overpaying
Low balance remaining near the end of term	May be worth clearing it to stop interest

For most graduates, student loans work more like a graduate tax than a real debt. Do not prioritise overpaying.

Workplace Pension

Detail	Information
When are you enrolled?	Within 3 months of starting (auto-enrolment)
Minimum your contribution	5% of qualifying earnings
Minimum employer contribution	3% of qualifying earnings
Qualifying earnings band	£6,240–£50,270 (2025/26)
Can you opt out?	Yes — but you lose the employer contribution
Should you opt out?	Almost never — the employer contribution is free money

Why Starting Your Pension Early Matters

Starting age	Monthly contribution	Annual growth (5%)	Pot at 68
22	£150 (you + employer)	5%	~£218,000
30	£150	5%	~£143,000
40	£150	5%	~£80,000

Starting at 22 instead of 30 gives you over £75,000 more from the same monthly amount — that is the power of compound growth.

Budgeting — The 50/30/20 Rule

Category	% of take-home pay	On £1,900/month
Needs (rent, bills, food, transport, insurance)	50%	£950
Wants (social, subscriptions, clothing, hobbies)	30%	£570
Savings and debt repayment	20%	£380

Typical Graduate Monthly Costs

Cost	Living at home	Renting (shared house)	Renting (alone)
Rent	£0–£200 (contribution)	£500–£800	£800–£1,400
Council tax	£0 (parents pay)	£80–£130 (shared)	£100–£200
Energy	£0 (parents pay)	£40–£80 (shared)	£80–£150
Food	£100–£150	£150–£250	£200–£300
Transport	£50–£150	£50–£150	£50–£150
Phone	£15–£30	£15–£30	£15–£30
Total essentials	£165–£530	£835–£1,440	£1,245–£2,230

Living at home for 1–2 years after graduating, if possible, is one of the most powerful financial moves you can make — it lets you build savings and get financially established.

Building Your Emergency Fund

Step	Target
1	Save £1,000 as a starter emergency fund (covers a broken phone, car repair, etc.)
2	Build to 3 months of essential expenses (typically £3,000–£5,000)
3	Keep it in an easy-access savings account — not invested
4	Only use for genuine emergencies
5	Top it back up after using it

Building Credit

Action	Why it matters
Get on the electoral roll	The single biggest boost to your credit score
Get a credit card and use it responsibly	Spend a small amount each month and pay in full by direct debit
Never miss a payment	Set up direct debits for everything
Avoid overdrafts if possible	Especially unauthorised overdrafts
Check your credit report	Free via ClearScore (Equifax), Credit Karma (TransUnion), or MSE Credit Club (Experian)

Credit Card Tips for Beginners

Do	Don’t
Use it for one regular purchase (e.g. groceries)	Use it for everything before you have discipline
Pay the FULL balance every month by direct debit	Pay only the minimum — you will pay huge interest
Keep utilisation under 30% of your limit	Max it out or use it close to the limit
Check your statement	Ignore your credit card account

Saving and Investing

Priority	What	Why
1	Emergency fund (easy-access savings)	Financial safety net
2	Workplace pension (minimum contribution)	Employer match = free money
3	Cash ISA or S&S ISA	Tax-free saving/investing
4	Lifetime ISA (if saving for first home)	25% government bonus on up to £4,000/year
5	Extra pension contributions	Tax relief and long-term growth

Lifetime ISA (If Buying Your First Home)

Detail	Information
Annual limit	£4,000
Government bonus	25% (up to £1,000/year)
Age limit	Open between 18–39, contribute until 50
Property price limit	£450,000
Early withdrawal (not for first home)	25% penalty — you lose money
Available from	Banks, building societies, investment platforms

Common Mistakes to Avoid

Mistake	What to do instead
Lifestyle creep — spending every pay rise	Save at least half of any pay increase
Ignoring your pension	Stay enrolled — check it occasionally
Overpaying student loan	Use spare cash for emergency fund, ISA, or pension instead
No budget	Use the 50/30/20 rule or a simple spreadsheet
Emergency tax for months	Check your tax code and contact HMRC to fix it
Taking out unnecessary credit	Only use credit purposefully to build your credit score
Not sharing a house	House-sharing saves £300–600/month vs renting alone

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