Gross salary and the money that actually lands in your account are two very different numbers. Here’s what comes off — and the strange band where a pay rise can cost you 60p in the pound.
Four things stand between gross and take-home: Income Tax, National Insurance, pension and any student loan. Each only applies above its own threshold, so your effective rate is far lower than the top band you reach.
The exception is the £100,000–£125,140 band, where your personal allowance is withdrawn and each extra pound is effectively taxed at around 60%. A pension contribution is the standard way to escape it.
Ask most people what they earn and they’ll tell you their gross salary. But it’s the net figure — what reaches your bank account — that actually pays the bills. Understanding the gap is the first step to keeping more of it.
Four deductions sit between gross and net, and each is charged only on the slice of your income above its threshold:
Because each is banded, your effective rate — total deductions as a share of gross — is always lower than the headline rate of the top band you reach. Someone “in the 40% bracket” doesn’t lose 40% of their whole salary, only of the part above the higher-rate threshold.
Income Tax, NI, pension and student loan, broken down to the pound — for England, Wales, NI and Scotland.
Here’s the quirk that catches high earners out. Once your income passes £100,000, your tax-free personal allowance is reduced by £1 for every £2 you earn, disappearing entirely at £125,140.
Losing allowance means more of your income becomes taxable at 40%, on top of the 40% on the pound itself. Combined, every pound earned in that band is effectively taxed at around 60% — higher than the headline 45% additional rate that only kicks in above it.
The fix: a pension contribution that brings your adjusted income back below £100,000 restores the lost allowance — so the effective relief on that contribution can be around 60%. It also protects benefits like tax-free childcare.
How your pension is set up changes your take-home — and even your student loan:
For most people, salary sacrifice is the more efficient route — the same pension contribution costs you less in take-home.
When you’re weighing a pay rise, a bonus or a pension top-up, your marginal rate — what the next pound is taxed at — matters far more than your average rate:
Thresholds, allowances and rates change at most Budgets. The figures here reflect the 2025/26 tax year — always check the current rules for your situation.
Between £100,000 and £125,140 your tax-free personal allowance is withdrawn by £1 for every £2 you earn. Each extra pound in that band is effectively taxed at around 60% once you combine the lost allowance with higher-rate tax. Pension contributions are the usual way to reduce income below £100,000 and avoid it.
Your gross salary has Income Tax, National Insurance, pension contributions and any student loan deducted. Only income above each threshold is charged, and the method depends on how your pension is set up. What remains is your net, or take-home, pay.
Yes. Salary sacrifice lowers your gross salary before Income Tax, NI and student loan are calculated, so it reduces all three. A net-pay or relief-at-source pension only reduces Income Tax.
Your marginal rate is the tax and deductions taken from your next pound of income, as opposed to your average rate across all your income. It matters most when deciding on a pay rise, bonus or pension contribution, and can be much higher than the headline band you think you’re in.
This article is general information, not financial or tax advice. It describes UK Income Tax, National Insurance and related rules for the 2025/26 tax year (England, Wales and Northern Ireland unless stated; Scotland differs). Rates and thresholds change; check the current rules or speak to a qualified adviser.