Pay rise or bonus: check what you'll actually keep

How a £5,000 rise can leave you £10,900 worse off

A parent earns £97,000, pays nothing into a pension through work and has a child aged 1. They're offered a £5,000 pay rise, which takes their ANI to £102,000.

The first £3,000 of the rise is taxed at 40%. The last £2,000 is taxed at 60%, because between £100,000 and £125,140 you also lose £1 of your personal allowance for every £2 you earn. Then the childcare goes.

Take the rise and keep the childcare

The fix is to pay the amount over the limit into a pension. Here that's £2,000 a year, which brings their ANI back to £100,000.

• Tax relief: £1,200, because that £2,000 would have been taxed at 60%.
• National Insurance saved: £40, if it goes in through salary sacrifice.
• What it costs: £760 a year from their take-home pay.
• Result: they're £1,740 a year better off than before the rise, with £2,000 more in their pension and their childcare kept.

How big would the rise need to be?

Without a pension contribution, the same parent would need a rise of about £32,200 just to break even. Any rise that takes them over the limit but is smaller than that leaves them worse off than if they'd stayed on £97,000. That's why the answer is almost always to take the rise and put the excess into your pension, not to turn it down.

Check whether your pension rises with your pay

If you pay a percentage of your salary into your pension, check whether it applies to the rise. It can decide which side of the limit you land on.

Take a parent on £95,000 who sacrifices 5% of their salary. Their ANI is £90,250. They get a £10,000 rise.

• If the 5% applies to the rise: their ANI goes to £99,750. They keep the childcare, take home £5,510 more and pay £500 more into their pension.
• If their pension stays at today's amount: their ANI goes to £100,250. That's just £250 over, but it costs the full £13,400 of childcare. Topping up their pension by £250 fixes it, for about £95.

Bonuses work the same way

A bonus counts towards your ANI in the tax year it's paid. On a £96,000 salary, an £8,000 bonus takes ANI to £104,000. Of the bonus, £3,840 is left after tax and National Insurance, but losing the childcare leaves the family £9,560 worse off overall. Paying £4,000 into a pension costs about £1,520, so they end up £2,320 ahead instead. More on bonuses over £100,000.

The bigger your family's childcare, the more a small rise can cost. A parent on £99,000 with a 1-year-old and a 3-year-old would lose £21,100 of support from a £2,000 rise, leaving them £20,140 worse off. A £1,000 pension contribution, costing about £380, avoids it.

Between £60,000 and £80,000: Child Benefit

If you claim Child Benefit, a rise in this band also increases the High Income Child Benefit Charge. A parent on £70,000 with two children gets a £5,000 rise. They take home £2,900 more after £2,000 of income tax and £100 of National Insurance. But their charge goes up from £1,168 to £1,752, so they keep £2,316 of the £5,000.

With an undergraduate student loan, another £450 goes in repayments, leaving £1,866. Child Benefit charge calculator.

What this calculator includes

• Tax: income tax at the rates for England, Wales and Northern Ireland, and employee National Insurance. Scottish income tax rates aren't included.
• Childcare: free hours in England, valued at the hourly rate you choose, and Tax-Free Childcare, which is UK-wide.
• Child Benefit: the charge is worked out on whichever parent has the higher ANI, using 52 weeks of payments.
• Student loans: 9% for undergraduate plans and 6% for postgraduate loans. At these incomes you're well over every repayment threshold.

The limit applies to each parent separately. If your partner is also near £100,000, add their income too, or check both in the main calculator.