How tax bands really work
Income Tax bands are slices. In England, Wales and Northern Ireland you pay nothing on the first £12,570, 20% on the next slice, and 40% only on income above £50,270.
Example: a pay rise from £50,000 to £51,000
- £270 of the rise is in the basic-rate band: 20% tax and 8% National Insurance, about £76
- £730 is in the higher-rate band: 40% tax and 2% National Insurance, about £307
You keep about £618 of the £1,000. Your pay below £50,270 is taxed exactly as before.
| Slice of income | Rate | Amount due |
|---|---|---|
| First £12,570 | 0% | £0.00 |
| Next £37,700 | 20% | £7,540.00 |
| The last £730 | 40% | £292.00 |
| Income Tax for the year | £7,832.00 | |
Only the last £730 is taxed at 40%. Everything below it is taxed exactly as before. National Insurance isn't included.
In Scotland, the bands are different: the 42% higher rate starts above £43,662. With National Insurance at 8% until £50,270, the extra pay between those two points loses 50p in every pound, but you still keep the other half.
Why the myth sticks
Moving into the higher rate is a big jump in what you keep from each extra pound, from 72p to 58p. Your first payslip after a rise can also look odd if your tax code takes time to catch up. But your total take-home pay still goes up. The salary calculator shows how much of every extra £100 you keep.
The real traps
These take far more of a rise than the headline rates, though almost never all of it:
- £100,000 to £125,140: you lose £1 of Personal Allowance for every £2 you earn, so the extra is taxed at an effective 60%. See the 60% tax trap.
- £60,000 to £80,000 with children: the High Income Child Benefit Charge claws back Child Benefit.
- Universal Credit: it falls by 55p for each £1 of take-home pay above your work allowance.
- Student loan repayments take 9% of income above the threshold, on top of tax.
The one real cliff edge is for parents at £100,000. Going even £1 over it in adjusted net income ends Tax-Free Childcare and the free childcare hours for working parents in England, which can be worth thousands of pounds a year. That’s the rare case where a small rise can leave a family worse off.
Paying more into your pension, through salary sacrifice or relief at source, can bring your income back below these thresholds while keeping the money for later.