Marginal vs effective rate
Two different numbers tell two different stories:
- Effective tax rate: total tax paid ÷ total income. The average rate on your salary as a whole.
- Marginal tax rate: the rate that applies to the next £1 you earn (or the last £1 you'd lose).
For someone on £50,000 in 2026/27 with the standard tax code:
- Income Tax: £7,486 + NI £2,994 = £10,480
- Effective rate: £10,480 ÷ £50,000 = 21%
- Marginal rate: 28% (the next pound would be taxed at basic-rate combined IT+NI)
These two numbers can diverge sharply. Someone on £105,000 has an effective rate around 30%, but a marginal rate of 62% because they're inside the personal allowance taper. The 62% marginal rate is what makes salary sacrifice exceptionally efficient at that income level — every £1 sacrificed avoids 62p of tax.
UK marginal rates by band (2026/27, rUK)
| Income band | Marginal Income Tax | Marginal NI | Combined marginal rate |
|---|---|---|---|
| Under £12,570 | 0% | 0% | 0% |
| £12,571 – £50,270 | 20% | 8% | 28% |
| £50,271 – £100,000 | 40% | 2% | 42% |
| £100,001 – £125,140 | 40% + 20% taper effect | 2% | 62% |
| £125,141+ | 45% | 2% | 47% |
The 62% spike inside the £100,000–£125,140 band is called the 60% trap. It's caused by the personal allowance tapering at the same time you're already paying higher-rate tax — every extra pound costs the 40% Income Tax plus the loss of 50p of allowance (worth another 20p at the marginal rate).
Why this matters for pension contributions
Pension tax relief is given at your marginal rate — the rate you'd otherwise pay on the contributed pound. So:
- Basic-rate taxpayer: each £100 pension contribution costs about £72 of take-home
- Higher-rate taxpayer: each £100 costs about £58 of take-home
- Inside the 60% trap: each £100 costs about £38 of take-home
- Additional-rate taxpayer: each £100 costs about £53 of take-home
The lower the cost-per-£100, the more "efficient" the contribution. People often time bonus sacrifice and large discretionary contributions to land in years when their marginal rate is highest.
Marginal rate in Scotland
Scottish marginal rates differ. For 2026/27:
- Starter (19%) + NI 8% = 27%
- Basic (20%) + NI 8% = 28%
- Intermediate (21%) + NI 8% = 29%
- Higher (42%) + NI 2% = 44%
- Advanced (45%) + NI 2% + taper = up to 67.5% in £100k–£125,140
- Top (48%) + NI 2% = 50%
The Scottish 60% trap is sharper at 67.5% because Advanced rate (45%) applies during the taper, not the rUK Higher rate (40%).