Written and reviewed by James Whitfield · Updated for 2026/27 · Editorial standards · Methodology
How to calculate the actual monthly gain from a pay rise, by tax band, with examples at common salary levels.
A £2,000 pay rise sounds meaningful. But the actual monthly improvement in take-home pay is always less, sometimes much less, because income tax and National Insurance both take a share of the increase. The percentage of the rise that you keep is your marginal retention rate, which depends on which tax band the extra income falls into.
In the basic rate band (income between £12,570 and £50,270), a £2,000 gross increase costs £400 in income tax and roughly £160 in NI, so you keep around £1,440, or £120 extra per month. That is 72% retention. At the higher rate (income above £50,270), the same £2,000 increase costs £800 in tax and about £40 in NI, leaving £1,160 net, or around £97 per month. Retention drops to 58%.
The worst zone is between £100,000 and £125,140. Here the personal allowance is being withdrawn at £1 per £2 of income, creating a 60% effective marginal income tax rate. Add 2% NI and the retention rate is just 38p per extra pound. A £5,000 raise in this zone nets only about £1,900 extra per year, and if the raise is not accompanied by a salary sacrifice pension increase to offset it, the effective outcome can be close to neutral.
The method is straightforward: calculate take-home pay on your current salary and your new salary, then subtract the two. The difference is your true monthly and annual increase. This removes any complexity about which band the increase spans or how thresholds interact, you are just comparing two outcomes directly.
The numbers change if you cross a threshold. If a pay rise takes you from £48,000 to £52,000, part of the increase sits in the basic rate band and part sits in the higher rate band. A calculator handles this automatically, but you should model it explicitly rather than applying a single marginal rate to the whole increase, since the first £2,270 of the increase (from £48k to £50,270) is taxed at 28% combined and the remaining £1,730 is taxed at 42%.
Student loans complicate this further. On Plan 2 (the most common for graduates since 2012), 9% of income above £27,295 goes to loan repayments. A pay rise from £35,000 to £38,000 costs an extra £270 per year in loan repayments on top of income tax and NI, reducing the net gain from £1,512 to £1,242. If you are also contributing to a pension, that further reduces the take-home increase, though the pension contributions are building an asset, so the economic impact is different from a tax.
Near the £100,000 threshold, an employer pension contribution increase can be worth more than an equivalent salary raise. If you are at £98,000 and your employer offers a £4,000 raise, that £4,000 sits in the personal allowance taper zone and gives you roughly £1,520 net after tax and NI. If instead they put the same £4,000 into your pension as an employer contribution, you receive the full £4,000 in your pension with no income tax, no NI, and no personal allowance taper impact.
Similarly, near the £50,270 threshold, a salary sacrifice pension contribution can maintain your effective net pay even as your gross increases. If a raise to £52,000 puts £1,730 in the 40% band, contributing that £1,730 to a salary sacrifice pension brings your taxable salary back to £50,270, you take the same net pay, but with more going into your pension at a better tax efficiency.
The headline lesson: negotiate the total package, not just gross. Employer pension contributions, extra holiday, flexible working, and health insurance all have real value that does not shrink at the marginal tax rate. A good offer comparison always looks at net monthly pay after all deductions, plus any employer contributions that build value over time.
Current tax-year thresholds used across this guide and calculator.
Yes. Use the scenario links in this guide to open prefilled states, then adjust salary, region, loan and pension settings.
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Tax region, tax code, student loan plan, pension contribution and salary sacrifice are the key assumptions to check first.