Written and reviewed by James Whitfield · Updated for 2026/27 · Editorial standards · Methodology
Understand personal allowance, basic rate, higher rate and the personal allowance taper in plain English with practical salary examples.
Typical default take-home figures for fast context before reading.
A frequent misunderstanding is that moving into a higher tax band means your whole salary is taxed at the higher rate. It does not. Each tax band only applies to the slice of income that falls within it.
A concrete example: on a £55,000 salary, you do not pay 40% on £55,000. You pay 0% on the first £12,570, 20% on £37,700 (the basic rate band), and 40% only on the final £4,730 above £50,270. Total income tax: £9,432, an effective rate of 17.1%, not 40%.
When comparing offers, use effective tax rate and monthly take-home rather than headline salary only. A £55,000 salary gives £3,584/month take-home (tax and NI only, no student loan or pension). A £60,000 salary gives £3,800/month, a difference of £216/month for an extra £5,000 gross.
There are five income levels that materially change your take-home calculations. First, £12,570, the personal allowance threshold. Below this, no income tax is owed. Second, £12,570 also triggers employee NI (primary threshold), so both income tax and NI start at the same point in 2026/27.
Third, £50,270, the higher rate threshold and NI upper earnings limit. Above this, income tax jumps to 40% but NI simultaneously drops from 8% to 2%, so the combined marginal rate rises from 28% to 42%, a meaningful but not catastrophic change. Fourth, £100,000, where personal allowance starts to taper, creating an effective 60% marginal rate on the slice up to £125,140.
Fifth, £125,140, where the personal allowance is fully withdrawn and the additional rate of 45% starts. Above this level, marginal combined rate is 47% (45% IT + 2% NI). Knowing which threshold your salary sits near is essential for realistic planning.
Between £100,000 and £125,140, the personal allowance is reduced by £1 for every £2 of additional income. This means you are paying 40% higher rate tax on new earnings while simultaneously losing 40% tax relief on the withdrawn allowance, creating an effective marginal income tax rate of 60% on that slice. Add 2% NI and the combined marginal rate reaches 62%.
In concrete terms: a pay rise from £100,000 to £110,000 costs approximately £6,200 in additional tax and NI, leaving only £3,800 extra in take-home. The same gross increase at £60,000 would deliver approximately £5,800 in additional take-home. The taper zone is genuinely punishing.
The most effective tool at this income level is pension salary sacrifice. Contributing £10,000 into pension via salary sacrifice at £110,000 reduces adjusted net income to £100,000, restoring the full personal allowance and saving approximately £4,100 in income tax, more than the pension contribution cost in net terms.
Effective tax rate is total income tax as a percentage of gross salary. On £40,000, total income tax is £5,486, giving an effective rate of 13.7%. Marginal rate is the rate on your next pound of earnings, at £40,000 it is 28% (20% IT + 8% NI). These two numbers serve different planning purposes.
Use effective rate for broad comparisons and tax burden discussions. Use marginal rate when modelling pay rises, pension contributions, or student loan repayments, because the marginal rate tells you how much of each extra pound you actually keep. At £40,000, each additional £1,000 gross delivers approximately £720 net. At £55,000, it delivers approximately £580.
For offer comparison, always anchor to monthly net take-home. Effective and marginal rates give context, but the number that matters for rent and bills is net monthly pay after all deductions. Build a scenario with your real assumptions, loan plan, pension contribution, tax code, before comparing offers that might look close on gross salary.
The key practical move is to compare net monthly pay between realistic salary points instead of assuming each extra pound lands at your average rate.
If a pay rise sits near a threshold, run nearby salary scenarios so you can see the true monthly gain under fixed assumptions.
For England, Wales and Northern Ireland in 2026/27: the personal allowance is £12,570, income below this is tax-free. The basic rate of 20% applies to income from £12,571 to £50,270 (a £37,700 band). The higher rate of 40% applies to income from £50,271 to £125,140. Income above £125,140 is taxed at the additional rate of 45%. At exactly £50,000, you pay 20% tax on £37,430 (£12,571–£50,000). At £50,270, you hit the top of the basic-rate band.
Scotland uses five bands. The starter rate of 19% applies from £12,571 to £14,876 (a narrow £2,306 band). The basic rate of 20% covers £14,877 to £26,561. The intermediate rate of 21% applies from £26,562 to £43,662. The higher rate of 42% (not 40%) covers £43,663 to £75,000. The advanced rate of 45% applies from £75,001 to £125,140, and the top rate of 48% applies above £125,140. The Scottish higher rate starts at £43,662, nearly £7,000 lower than the UK higher rate threshold, which is why Scottish residents on salaries of £45,000–£75,000 pay noticeably more income tax than equivalent salaries in England.
National Insurance follows different thresholds and does not use the same band structure as income tax. For 2026/27, employee NI Class 1 contributions are 8% on earnings from the primary threshold (£12,570) to the upper earnings limit (£50,270), then 2% above that. Unlike income tax, there is no personal allowance-equivalent for NI, contributions start at the primary threshold directly. The result is that someone earning £25,000 pays NI on £12,430 (£25,000 minus £12,570), not on the full salary.
Effective tax rate is your total income tax as a percentage of gross salary. It is always lower than your marginal rate because only the income in the top band faces that rate. At £40,000, the marginal rate is 20% but the effective income tax rate is around 12%, because the first £12,570 is tax-free and the remaining £27,430 is taxed at 20% (giving £5,486 on £40,000 gross). Add NI of approximately £2,186 (8% on £27,430) and your effective combined deduction rate is about 19% of gross.
At £60,000, the marginal rate is 40% but the effective income tax rate is around 20%. You pay 20% on the £37,700 basic-rate band and 40% on the £9,730 that falls above £50,270. Total income tax is approximately £11,432 on £60,000 gross, an effective rate of 19%. Add NI (8% on £37,700 basic-rate plus 2% on £9,730) and the combined effective rate is approximately 28%.
This distinction matters because people often fear 'crossing into the 40% tax bracket' when in practice the monthly impact is much more moderate than that phrase implies. A salary rise from £50,000 to £55,000 increases gross pay by £5,000/year (£417/month), but the after-tax gain is approximately £5,000 × (1 – 40% – 2%) = £2,900/year (£242/month), because only the new £5,000 slice is taxed at 40% plus 2% NI. You keep more than half of the rise.
Above £100,000, the personal allowance is withdrawn at a rate of £1 for every £2 of income above £100,000. The allowance is fully removed by £125,140. During this withdrawal, additional income is effectively taxed at the higher rate (40%) plus the rate on the withdrawn allowance (another 40% equivalent on that slice). The result is a 60% effective marginal rate on income between £100,000 and £125,140.
In practice, this means that moving from £100,000 to £101,000 produces less take-home pay than it should at face value. The extra £1,000 gross results in approximately £400 in net pay (40% tax on the £1,000 income, then an additional £500 of allowance withdrawn which is taxed at 40% = £200 more tax). So the £1,000 rise costs around £600 in additional tax, leaving only £400 take-home.
Pension salary sacrifice contributions are particularly valuable in this taper range. Contributing £1,000 to a pension via salary sacrifice reduces adjusted income by £1,000, which both avoids the 40% tax on that income AND restores £500 of personal allowance, saving approximately £600 in tax. This is why high earners near £100,000 often receive advice to increase pension contributions to bring adjusted income below the taper threshold.
Marginal rate matters most when comparing two concrete salary options. Model both with matched assumptions and focus on monthly net delta.
This gives a decision-grade view of how much of the increase you keep, instead of relying on gross-only thinking.
Use these current tax-year figures as context while reading this article.
| Band | Gross salary range | Rate |
|---|---|---|
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £137,710 | 40% |
| Additional rate | Over £137,710 | 45% |
| Band | Gross salary range | Rate |
|---|---|---|
| Starter rate | £12,571 to £16,537 | 19% |
| Basic rate | £16,538 to £29,526 | 20% |
| Intermediate rate | £29,527 to £43,662 | 21% |
| Higher rate | £43,663 to £75,000 | 42% |
| Advanced rate | £75,001 to £137,710 | 45% |
| Top rate | Over £137,710 | 48% |
| Plan | Threshold | Rate |
|---|---|---|
| PLAN1 | £26,900 | 9% |
| PLAN2 | £29,385 | 9% |
| PLAN4 | £33,795 | 9% |
| PLAN5 | £25,000 | 9% |
| Postgraduate | £21,000 | 6% |
Yes. The examples align to current 2026/27 assumptions used by the calculator, including PAYE income tax and UK NI treatment.
Differences usually come from tax-code changes, bonus timing, benefits, multiple employments or period-level payroll adjustments.
No. Compare both monthly and annual net pay because loan plan, pension and tax-region settings can materially change outcomes.
Yes. Correct student loan plan and pension percentage are two of the biggest drivers of realistic net-pay estimates.
No. This content is informational and planning-focused, not personal financial advice.
Use official HMRC and UK government guidance for tax, NI, student loan and Scottish income tax rules.