The headline number is not the number
A calculator that turns £45,000 and 5% into £47,250 has told you something you could do on a phone. The figure worth having is what reaches the bank, and on an ordinary salary that is roughly 70p in the pound once income tax, National Insurance and a pension contribution rising alongside the salary have come off.
In two specific places it is very much worse, and both of them are invisible on any calculator that multiplies by 1.05.
Trap one: £100,000 to £125,140
Above £100,000 the personal allowance is withdrawn at £1 for every £2 of income. So each extra pound of salary costs you tax on the pound itself, plus tax on the 50p of allowance it just destroyed, plus National Insurance.
- England, Wales and Northern Ireland: about 62%.
- Scotland: about 69.5%, because that slice sits in the 45% advanced rate.
Both are higher than either country's top rate of tax. Somebody on £100,000 offered a £5,000 rise keeps around £1,900 of it in England and around £1,525 in Scotland. The allowance is fully gone by £125,140 and the rate drops back, which produces the odd result that the band is worse than the one above it.
Most calculators get this wrong, because they work the personal allowance out once instead of tapering it as income rises.
Trap two: the Scottish 50% band
This one exists because nobody joined two thresholds up. Income tax bands are devolved. The National Insurance upper earnings limit is reserved to Westminster. Neither government has to consider the other, and they did not.
- The Scottish higher rate starts at £43,663.
- The National Insurance upper earnings limit is about £50,270.
Between those two figures a Scottish employee pays 42% income tax and the full 8% National Insurance at the same time. Fifty per cent, on a slice of salary where somebody doing the identical job in England pays twenty-eight. The gap is roughly £6,600 wide and it is produced by nothing except two numbers set by two different governments.
Ask the question backwards
Most people do not want to know what 5% is worth. They want to know what to ask for in order to be £200 a month better off, which is a different sum and a harder one, because the answer depends on where the rise lands.
At £35,000, £200 a month means asking for about £3,300. At £100,000 the same £200 a month means asking for about £6,300. Nearly twice the rise for identical money in your pocket. Going into a pay conversation with the gross figure that produces the outcome you want, rather than a percentage, is a materially stronger position.
What to do about the taper
A pound paid into a pension out of the £100,000 to £125,140 band buys back the personal allowance it would otherwise have destroyed, so it attracts relief at the same 60-odd per cent. There is nowhere else in the system that does this, and it is why so many people at that salary sacrifice hard.
It is worth asking for salary sacrifice specifically rather than a normal contribution. Sacrifice reduces gross pay before anything sees it, so it also cuts the employer's National Insurance bill by 15% of the amount. Many employers keep that saving, and many will add it to your pension if asked, because it costs them nothing to do so.
Why last year's rise felt bigger
The personal allowance and the higher rate threshold have been frozen for several years while pay has risen. A rise that merely keeps pace with inflation still pushes more of your salary into a higher band, so each successive rise is taxed a little harder than the one before it. No rate has to change for that to happen, which is how it goes unnoticed.
Common questions
How much of a pay rise do I actually keep?
On an ordinary salary, usually somewhere between 60% and 72% of it, once income tax, National Insurance and a pension contribution rising alongside the salary are taken off. In two specific places it is far worse: between £100,000 and £125,140 you keep about 38% in England and 30% in Scotland, and in the Scottish band between £43,663 and roughly £50,270 you keep half.
Why is the marginal rate at £100,000 higher than the top rate of tax?
Because the personal allowance is withdrawn at £1 for every £2 of income above £100,000. Each extra pound therefore costs tax on the pound itself, plus tax on the 50p of allowance it just destroyed, plus National Insurance. That comes to about 62% in England, Wales and Northern Ireland and 69.5% in Scotland, both higher than either country’s headline top rate. The allowance is fully gone at £125,140 and the rate drops back.
Why does Scotland have a 50% band in the middle of the salary range?
Because two governments set two thresholds and nobody has to make them agree. Income tax bands are devolved, so the Scottish higher rate starts at £43,663. The National Insurance upper earnings limit is reserved to Westminster and sits at about £50,270. Between those figures a Scottish employee pays 42% income tax and the full 8% National Insurance at the same time, where the same job in England is taxed at 20% plus 8%.
I need £200 a month more. What rise should I ask for?
It depends entirely on your current salary. At £35,000 you need about £3,300, because you keep roughly 72% of it. At £100,000 you need about £6,300 for the identical gain, because you keep about 38%. Nearly twice the rise for the same money in your pocket, which is why the question is worth working backwards rather than forwards.
Is it better to ask for a pension contribution instead?
In the taper band it is dramatically better. A pound put into a pension out of the £100,000 to £125,140 range buys back the personal allowance it would otherwise have destroyed, so relief is at the same 60-odd per cent. Nowhere else in the system gives that. It is also worth asking about salary sacrifice specifically, because that saves the employer 15% employer National Insurance and some will add the saving to your pension if asked.
Does a rise ever leave me worse off?
Not on tax alone. No marginal rate in the system exceeds 100%, so more gross always means more net. What changes is how much of it survives, and it can fall to under a third. Genuine cliff edges do exist elsewhere in the system, in benefit withdrawal and childcare support, and those sit outside this calculation.
Why is my rise worth less than last year’s identical one?
Because the personal allowance and the higher rate threshold have been frozen for several years while wages have risen. A rise that only matches inflation still pushes more of your salary into a higher band, so each successive rise is taxed slightly harder than the last. That is the mechanism, and it happens without any rate being changed.