How a Pay Rise Is Really Taxed: The UK Marginal-Rate Map (2026/27)
Most people know their tax band. Far fewer know their marginal rate — the tax on the next pound they earn — and the two can differ wildly. Because allowances are withdrawn and benefits clawed back at particular income points, the marginal rate does not climb smoothly from 20% to 45%; it spikes and dips. Understanding that curve is the single most useful thing you can do when deciding what to do with a pay rise or a bonus.
Marginal versus effective: two different numbers
There are two rates worth separating:
- Your effective (average) rate is your total tax and National Insurance divided by your gross income — what you actually hand over across the whole salary.
- Your marginal rate is what you pay on the next pound. It decides whether a pay rise is worth chasing and how much a pension contribution saves you.
The marginal rate is almost always higher than the effective rate, because the effective rate is dragged down by the tax-free and low-rate income underneath. The gap can be large, as we will see.
The base marginal-rate map (rest of UK, 2026/27)
Combining Income Tax with employee National Insurance (8% up to £50,270, then 2%), the marginal rate on each band looks like this for someone with no student loan and no Child Benefit:
| Income band | Income Tax | NI | Marginal rate |
|---|---|---|---|
| £0 – £12,570 | 0% | 0% | 0% |
| £12,570 – £50,270 | 20% | 8% | 28% |
| £50,270 – £100,000 | 40% | 2% | 42% |
| £100,000 – £125,140 | 60%* | 2% | 62% |
| Above £125,140 | 45% | 2% | 47% |
The oddity is that the rate rises to 62% and then falls back to 47%. That asterisked 60% comes from the personal-allowance taper. Between £100,000 and £125,140 you lose £1 of tax-free allowance for every £2 you earn, so each extra pound is taxed at 40%, and the 50p of allowance it strips away is taxed at 40% too:
The overlays that push it higher
The map above is the floor. Two common features stack on top of it.
Student loans: +9% (or +6%)
Above your plan threshold you repay 9% of additional income (6% for a postgraduate loan). This is not tax, but it is money taken from each extra pound, so it adds directly to your marginal rate. A higher-rate taxpayer with a Plan 2 loan is on 42% + 9% = 51% at the margin.
The Child Benefit charge: +6% to +16%
Between £60,000 and £80,000 of adjusted net income, the High Income Child Benefit Charge claws back your Child Benefit at a steady rate. Because the full benefit is withdrawn across a £20,000 span, the marginal cost is the annual benefit divided by £20,000:
The UK marginal-rate curve (with National Insurance). The base line already spikes to 62% in the £100k–£125k taper; add a student loan and two children and the next pound is taxed at 62.7% around £60k–£80k and 71% above £100k — far above the 47% paid at the very top.
Worked spike 1: the £62,000 trap for graduate parents
Consider a parent of two with a Plan 2 student loan earning £62,000. They sit above £50,270 (so 40% + 2%), above the £29,385 student-loan threshold (+9%), and inside the £60,000–£80,000 Child Benefit band (+11.7%):
So a £1,000 pay rise hands this person only about £373 in their pocket. A £1,000 pension contribution, by contrast, costs them only about £373 of take-home — the mirror image — which is why sacrifice is so powerful here.
Worked spike 2: the £110,000 mega-spike
Now a higher earner on £110,000 with a Plan 2 loan. They are in the personal-allowance taper (60% effective Income Tax), pay 2% NI, and repay 9% on the loan:
Each extra £1,000 earned here yields about £290. The same £1,000 sacrificed into a pension restores allowance, avoids the loan deduction on that slice and costs roughly £290 of take-home — an exceptional effective return.
The same spikes that punish a pay rise reward a pension contribution: where a £1,000 rise nets just £290, a £1,000 sacrifice costs you only £290.
Marginal is not effective: the £120,000 example
It is vital not to confuse these spikes with your overall rate. Take someone on £120,000 with no loan or children. Their marginal rate is a painful 62%, but their effective rate is far lower, because most of their income was taxed at 0%, 20% and 40% first:
So the same person is simultaneously on a 62% marginal rate and a 36.5% effective rate. When you read that "high earners pay 62%", it is the marginal figure — true only for the slice inside the band, not the whole salary.
How to flatten your own curve
Because the spikes are triggered by adjusted net income, anything that lowers that figure can drop you out of a spike: pension contributions (especially by salary sacrifice) and Gift Aid are the main tools. The strategy is simple — identify which band your top slice of income sits in, and if it is one of the 60%+ spikes, that is exactly the income you most want to divert into your pension. The salary sacrifice optimiser finds the precise contribution to escape the £100k taper, and the household calculator does the same for the Child Benefit band.
The bottom line
The UK marginal-rate curve is not a smooth staircase — it spikes to 62% at £100,000, and higher still once student loans and the Child Benefit charge are layered on, before easing to 47% at the top. Knowing where your next pound lands on that curve tells you both how much a pay rise is really worth and how much a pension contribution will save. Map your own position before you act.
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Common questions
Sources
GOV.UK — Income Tax rates, National Insurance and the High Income Child Benefit Charge. See our full methodology and rates.
This article is general information for the 2026/27 tax year and not personalised financial advice. Check your own loan details in your student loan account and verify figures against GOV.UK before making decisions.