Most people know their tax band. Far fewer know what the next pound they earn is actually taxed at.
Most people know roughly what tax band they are in. Far fewer know what the next pound they earn is taxed at — and that is the number that decides whether a pay rise, a bonus or a pension contribution is worth what you think it is.
For England, Wales and Northern Ireland:
| Band | Income | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Scotland sets its own income tax bands, with more of them and different thresholds, so Scottish taxpayers should check the Scottish rates rather than the table above.
Your marginal rate is what the next pound is taxed at. Your effective rate is what your whole income is taxed at on average.
Someone earning £60,000 has a marginal rate of 40%, but their effective rate is closer to 22%, because the first £12,570 was untaxed and the next £37,700 was taxed at 20%. Moving into a higher band never reduces your take-home pay — only the income above the threshold is taxed at the new rate.
Between £100,000 and £125,140, the personal allowance is withdrawn at a rate of £1 for every £2 earned. You are paying 40% on the new income and losing tax-free allowance as you go.
The effective marginal rate in that stretch is 60% — higher than the 45% additional rate that sits above it. A £5,000 bonus taken as cash in this band leaves about £2,000 in your pocket.
The standard response is to make a pension contribution large enough to bring adjusted net income back under £100,000. Money that would have been taxed at 60% goes into your pension instead, which is why financial advisers spend so much time on this specific range.
Income tax is only part of the deduction. Employee National Insurance adds 8% on earnings between £12,570 and £50,270, then 2% above that.
The NI rate falling to 2% above the higher-rate threshold is why the jump from basic to higher rate is less brutal than it looks: the combined marginal rate goes from 28% to 42%, not from 20% to 40%.
Personal Savings Allowance. £1,000 of savings interest tax-free for basic-rate taxpayers, £500 for higher-rate, nothing for additional-rate.
Dividend allowance. £500 for 2025/26, after which dividends are taxed at their own rates.
Capital gains annual exempt amount. £3,000 for 2025/26.
All three have shrunk considerably in recent years, which has quietly made ISAs more valuable — inside an ISA, none of these limits apply at all.
Pension contributions. The main lever. They reduce adjusted net income, which matters enormously in the 60% band and for anyone near the £50,270 threshold with children claiming Child Benefit.
Salary sacrifice. Swapping salary for a pension contribution or another benefit reduces National Insurance as well as income tax, for both you and your employer.
ISAs. They do not reduce your income tax, but they permanently remove savings interest, dividends and gains from the tax system.
Marriage Allowance. If one partner earns under the personal allowance and the other is a basic-rate taxpayer, up to £1,260 of allowance can be transferred.
Charitable giving through Gift Aid. Extends your basic-rate band, which can pull income back out of a higher band.
Tax thresholds are frozen rather than rising with inflation, which pulls more people into higher bands each year without any rate changing. That is worth remembering when a pay rise feels smaller than expected.
Three specific cliff edges catch people out: the £100,000 allowance taper, the £50,000 to £60,000 range where the High Income Child Benefit Charge claws back Child Benefit, and the £50,270 higher-rate threshold itself. Around all three, a pension contribution is worth more than its face value.
If you want the after-tax figure organised into a working monthly plan, the 50/30/20 budget planner is built around take-home pay.
If you want to see where the money goes after tax, the budget planner works from take-home figures, and what is an ISA covers the wrapper that keeps future savings out of the tax system entirely.