A pay rise feels like it should be straightforward: more money in, more money out. In practice, income tax and National Insurance take a share of every extra pound, so the real increase to your bank balance is always smaller than the headline figure — and at certain thresholds, much smaller.
Knowing what you actually keep helps you evaluate an offer realistically, negotiate on the right terms, and decide whether to take the money or put it into a pension.
What you keep from each extra pound
The amount you keep depends entirely on your marginal rate — the rate that applies to your top slice of income, not your average rate:
| Your situation | Income tax | National Insurance | You keep |
|---|---|---|---|
| Basic-rate taxpayer | 20% | 8% | 72p |
| Higher-rate taxpayer | 40% | 2% | 58p |
| £100k–£125,140 taper | up to 60% | 2% | ~38–40p |
So a £5,000 pay rise for a basic-rate taxpayer is worth about £3,600 a year (£300 a month). For a higher-rate taxpayer, the same rise is worth about £2,900. In the taper zone it can fall to £2,000 or less.
Worked example: £50,000 to £55,000
Suppose you earn £50,000 and receive a £5,000 rise. The whole rise falls into the 40% higher-rate band, because £50,000 already sits at the top of the basic-rate range.
- Income tax: 40% × £5,000 = £2,000
- National Insurance: 2% × £5,000 = £100
- You keep £2,900
Your take-home rises from about £3,293 a month to about £3,535 — a real gain of £242 a month, not the £417 the gross rise suggests.
The thresholds that change everything
Two income levels have an outsized effect on what a pay rise is worth.
£50,270 — the higher-rate threshold. Once your income passes this, every additional pound is taxed at 40% rather than 20%. A pay rise that takes you across it is worth less on the portion above. A £2,000 rise from £49,500 to £51,500 is taxed partly at 20% and partly at 40%.
£100,000 — the personal allowance taper. Above £100,000, you lose £1 of your tax-free allowance for every £2 earned. This produces an effective marginal rate of 60% between £100,000 and £125,140 — the highest in the UK system. A rise from £100,000 to £105,000 delivers only about £2,000 extra take-home, despite the £5,000 gross increase.
When a pay rise reduces your benefits
It is not only tax that reduces the value of a raise. Because your gross income has risen, you may also lose or reduce:
- Child benefit — reduced or clawed back once one partner earns over £60,000, and fully withdrawn at £80,000.
- Tax-free childcare and free childcare hours — eligibility depends on income bands.
- Universal Credit and other means-tested support — taper away as earnings rise.
- Student loan repayments — charged at 9% above the threshold, so a rise increases them too.
In combination, these can mean a modest gross pay rise delivers almost no net improvement for some households — a situation worth checking before accepting or requesting a particular figure.
How to keep more of your pay rise
The most effective way to protect a rise from tax is to redirect part of it into a pension, ideally through salary sacrifice:
- Salary sacrifice reduces your gross pay, so you save National Insurance as well as income tax — up to 42% for a higher-rate taxpayer.
- If the rise would push you over £50,270 or £100,000, sacrificing enough to stay below the threshold can be disproportionately valuable.
- Employer pension matching turns part of the rise into free additional money.
Other options include a cycle-to-work scheme, an electric vehicle salary sacrifice scheme, or negotiating non-cash benefits that are taxed more lightly. Each has rules, but the principle is the same: reduce taxable income to keep more of the total value.
Negotiating with the net figure in mind
When you discuss pay, it helps to talk in take-home terms. A £3,000 rise sounds substantial, but if you are a higher-rate taxpayer it is around £1,740 a year net — about £145 a month. Knowing that lets you ask for what you actually need, or propose alternatives such as additional pension contributions, extra holiday or flexible working that may be worth more to you than the gross number.
Key takeaways
- You keep 72p per extra pound as a basic-rate taxpayer and 58p as a higher rate payer.
- Between £100,000 and £125,140, you may keep only 40p due to the 60% effective rate.
- Pay rises can reduce child benefit and means-tested support, not just increase tax.
- Salary sacrifice into a pension is the most effective way to keep more of a rise.
- Negotiate in take-home terms to understand the real value of an offer.
Use our pay rise calculator to see exactly what a raise is worth after tax and National Insurance, then model the full picture with the take-home pay calculator. To compare a new offer against your current role, the salary comparison tool shows both side by side.