Published: June 2026 | Fact-Checked & Audited By: David Vance, CTA FCA (Chartered Tax Advisor & Accountant)
This guide is fully updated for the 2026/27 HMRC tax year. All calculations and tax rules have been audited against official UK legislation.
When you are awarded a pay rise in the UK, it is natural to feel a sense of achievement. However, that excitement is often tempered by the reality of deductions when your first payslip arrives. In the UK tax system, you never keep the full amount of a salary increase. Instead, your pay rise is subjected to your “marginal tax rate”—which is the combined rate of Income Tax, National Insurance Contributions (NICs), and any other deductions like student loans or pensions. Understanding how much of your pay rise actually lands in your pocket is essential for realistic household budgeting and career planning.
The Mechanism of Marginal Taxation
In the UK, Income Tax is progressive, meaning different bands of your income are taxed at different rates. When you receive a pay rise, the extra money sits on top of your existing salary. Therefore, the entire increase is taxed at your highest applicable rate. For example, if you earn £40,000 and receive a £5,000 pay rise, the entire £5,000 falls within the Basic Rate band (taxed at 20%), plus Class 1 National Insurance at 8%. This means your marginal rate is 28%, and you will keep 72% (£3,600) of that raise. If your raise pushes you into the Higher Rate band (£50,271 or above), a portion of the raise is taxed at 40% plus 2% National Insurance, resulting in a marginal rate of 42% on that segment.
Marginal Deduction Breakdown for 2026/27
For the 2026/27 tax year, the core tax bands for England, Wales, and Northern Ireland remain frozen. Below is a breakdown of how a pay rise is taxed depending on your income level:
| Current Salary Range | Income Tax Rate on Raise | NI Rate on Raise | Total Marginal Rate | Percentage of Raise Kept |
|---|---|---|---|---|
| Under £12,570 (Personal Allowance) | 0% | 0% (under threshold) / 8% | 0% – 8% | 92% – 100% |
| £12,570 to £50,270 (Basic Rate) | 20% | 8% | 28% | 72% |
| £50,271 to £125,140 (Higher Rate) | 40% | 2% | 42% | 58% |
| £100,000 to £125,140 (Allowance Taper) | 60% | 2% | 62% | 38% |
| Over £125,140 (Additional Rate) | 45% | 2% | 47% | 53% |
Regional Differences: The Scottish Factor
If you are a taxpayer in Scotland, your pay rise is subject to different Scottish income tax bands. The Scottish tax system features more tax bands and higher rates. For example, a basic rate taxpayer in Scotland faces a Starter, Basic, or Intermediate rate (ranging from 19% to 21%). Once your salary exceeds £43,662, you enter the Higher Rate band at 42%. With NI at 8% or 2%, Scottish earners often pay a higher marginal rate on their raises. At the top end, the Scottish Advanced and Top rates create marginal income tax rates of 45% and 48% respectively, making salary increases significantly more heavily taxed than in the rest of the UK.
To calculate exactly how much of a salary increase you will retain based on your specific location and tax code, use our specialized Pay Rise Calculator.
Frequently Asked Questions: Keeping Your Pay Rise
1. How much of my pay rise will I keep after tax in the UK?
Most UK workers on basic rate salaries keep 72% of their pay rise, while higher rate earners keep 58% after income tax and NI deductions. If you earn between £100,000 and £125,140, the personal allowance taper reduces the amount kept to just 38%.
2. What is a marginal tax rate on a salary increase?
The marginal tax rate is the combined percentage of tax and National Insurance deducted from the very next pound you earn. Unlike your average tax rate, it applies fully to the entire amount of your pay rise.
3. Does a pay rise increase the amount of National Insurance I pay?
Yes, National Insurance is calculated as a percentage of your gross earnings, so any pay rise will increase your weekly or monthly NI deductions. For earnings between £12,570 and £50,270, the rate is 8%; for earnings above £50,270, it drops to 2%.
4. Will a pay rise push me into a higher tax bracket?
Only the portion of your new salary that exceeds the threshold of the higher bracket will be taxed at the higher rate. Getting a raise will never reduce your net take-home pay overall, though it increases the tax rate on the extra money.
5. How is a pay rise taxed in Scotland compared to England?
Scottish taxpayers face higher marginal tax rates on pay rises because the Scottish Higher Rate of 42% starts at a lower threshold of £43,662. In England, the Higher Rate of 40% does not start until your salary reaches £50,271.
6. How does my tax code change after getting a pay rise?
Your tax code generally stays the same (usually 1257L) after a pay rise unless your earnings exceed £100,000, which triggers a reduction in your Personal Allowance. However, if you receive taxable company benefits along with your raise, HMRC may adjust your code.
7. Why does my first paycheck after a pay rise look smaller than expected?
This often happens because your payroll system calculates deductions based on your new annual salary for the remaining months of the tax year. If the raise is backdated, you may also see a temporary spike in tax and NI due to lump-sum processing.
8. Can a pay rise lead to overpaid tax?
Yes, if your employer applies an emergency tax code or processes a backdated salary increase, too much tax might be deducted initially. Any overpaid tax is typically automatically refunded via PAYE in subsequent months or via a P800 calculation after the tax year ends.
9. Do company pension contributions reduce the tax on my pay rise?
Yes, pension contributions made through salary sacrifice or net pay arrangements reduce your taxable gross income, reducing the tax paid on your raise. This is one of the most effective ways to offset the tax impact of a salary raise.
10. How do student loans affect my pay rise take-home amount?
Student loan repayments are calculated as a percentage of your earnings above specific thresholds, adding 9% (or 6% for postgraduate loans) to your marginal deduction rate. For a basic rate earner, this increases the total deduction rate from 28% to 37%.