The four deductions that turn gross into net
Your gross salary is the headline number your employer quotes. Your net pay (take-home) is what lands in your bank account after deductions. In the UK, the four main deductions are applied in this order: pension contributions (which reduce your taxable pay), Income Tax, National Insurance, and student loan repayments. Council tax, utilities and other living costs come out of your net pay — they are not payroll deductions. Understanding each deduction matters because two people on the same gross salary can take home very different amounts depending on their pension contribution, student loan plan and whether they have crossed a tax threshold.
Income Tax is charged on your taxable income (gross minus pension contributions and the £12,570 Personal Allowance) at 20%, 40% or 45% depending on the slice. National Insurance (NI) is a separate contribution that funds the NHS, State Pension and benefits — employees pay 8% on earnings between £12,570 and £50,270, and 2% above £50,270. Pension contributions under auto-enrolment are at least 5% from you (plus 3% from your employer), and they reduce your taxable income. A student loan is repaid at 9% of income above a threshold, depending on your plan type.
2026/27 rates and thresholds
| Deduction | Threshold / band | Rate |
|---|---|---|
| Income Tax — Personal Allowance | £0 – £12,570 | 0% |
| Income Tax — basic rate | £12,571 – £50,270 | 20% |
| Income Tax — higher rate | £50,271 – £125,140 | 40% |
| Income Tax — additional rate | Over £125,140 | 45% |
| National Insurance | £12,570 – £50,270 | 8% |
| National Insurance (upper) | Over £50,270 | 2% |
| Student loan (Plan 2) | Over £27,295 | 9% |
| Student loan (Plan 5) | Over £25,000 | 9% |
GOV.UK — Income Tax rates · National Insurance rates · 2026/27
Scotland sets its own income tax bands (though NI is UK-wide), and the Personal Allowance tapers by £1 for every £2 of income above £100,000, reaching zero at £125,140. The examples below are for taxpayers in England, Wales and Northern Ireland, with no student loan and no pension contribution (so they show the maximum take-home before those optional deductions).
Worked examples: £30k, £50k, £80k, £100k
| £30,000 | £50,000 | £80,000 | £100,000 | |
|---|---|---|---|---|
| Gross salary | £30,000 | £50,000 | £80,000 | £100,000 |
| Personal Allowance | £12,570 | £12,570 | £12,570 | £12,570 |
| Income Tax | £3,486 | £7,486 | £19,432 | £27,432 |
| National Insurance | £1,394 | £2,994 | £3,611 | £4,011 |
| Net take-home | £25,120 | £39,520 | £56,957 | £68,557 |
| Monthly net | £2,093 | £3,293 | £4,746 | £5,713 |
| Effective tax + NI rate | 16.3% | 21.0% | 28.8% | 31.4% |
Notice that the effective rate climbs steadily but the marginal rate jumps at key thresholds. Between £50,271 and £100,000, every extra £1 is taxed at 40% income tax plus 2% NI = a 42% marginal rate. Between £100,000 and £125,140, the Personal Allowance taper pushes the marginal rate to roughly 62% (40% tax + 2% NI + the effective 20% from losing £1 of allowance for every £2 earned). Above £125,140 it drops back to 47% (45% + 2% NI).
Pension contributions: the deduction that saves you tax
If you are in a workplace pension under auto-enrolment, you contribute at least 5% of your qualifying earnings (your employer adds 3%). These contributions are deducted from your gross salary, reducing your taxable income — so you get tax relief at your marginal rate. For a basic-rate taxpayer, a £100 pension contribution costs you just £80 from take-home; for a higher-rate taxpayer it costs £60. Pension contributions can also bring your income below thresholds like the £50,270 higher-rate boundary or the £100,000 Personal Allowance taper, which is why they are one of the most tax-efficient deductions on your payslip.
Use our pension calculator to see how increasing your contribution affects both your take-home pay and your retirement pot.
Student loan repayments
If you have a student loan, it is repaid through your payroll at 9% of income above a threshold. The threshold depends on your plan type: Plan 2 (most students who started in England or Wales from 2012) has a threshold of £27,295, while Plan 5 (new starters from August 2023) has a lower threshold of £25,000. Plan 1 (older students) and postgraduate loans have different thresholds and rates.
For example, on a £40,000 salary with a Plan 2 loan, you repay 9% of (£40,000 − £27,295) = £12,705 × 9% = £1,143 per year, or about £95 a month. The loan is written off after a set period (30 years for Plan 2, 40 years for Plan 5) regardless of the balance, so it functions more like a graduate tax than a conventional debt. Use our student loan calculator to model your own repayments.
Effective vs marginal tax rates
Your effective tax rate is the total tax and NI you pay divided by your gross salary — this is the "average" rate across all your income. As the table shows, it ranges from about 16% at £30,000 to 31% at £100,000. Your marginal tax rate is the rate you pay on the next £1 you earn — this is what matters when you are considering a pay rise, overtime or a bonus. Because of the Personal Allowance taper and the interaction between tax and NI, your marginal rate can be much higher than the headline band rate — as high as 62% between £100,000 and £125,140.
Frequently asked questions
Why is my take-home pay less than my salary?
How much will I take home on £50,000?
What is the 60% tax trap between £100,000 and £125,140?
Do pension contributions reduce my tax?
How is a student loan repaid?
Is National Insurance the same as income tax?
Sources
- GOV.UK — Income Tax rates and Personal Allowances (2026/27 bands and £12,570 allowance)
- GOV.UK — National Insurance rates (employee 8% / 2% rates, 2026/27)
- GOV.UK — Repaying your student loan (Plan 2 / Plan 5 thresholds and 9% rate, accessed 2026)