Take Home

How we calculate

Pay uses the tax year and personal details you select. Retirement adds assumptions about future returns and spending. The figures below explain what each result means.

Pay and rounding

Salary, bonus and the selected tax code determine estimated annual income tax. The standard code follows the Personal Allowance taper; other supported codes use the allowance or rate they specify. Scottish bands apply to Scottish non-savings income. This is an annual estimate, not a reconstruction of cumulative PAYE deductions from previous payslips.

The usual income-tax calculation rounds taxable income down to whole pounds and band tax down to pennies. National Insurance rounds each band to the nearest penny, with half a penny rounded down. Student loan deductions are rounded down to whole pounds for the modelled pay period. Monthly and weekly figures on the page divide the annual result; they need not match an individual payslip.

Ordinary pay uses annual National Insurance thresholds. When a bonus is entered, National Insurance and payroll student loans use eleven ordinary months and one month containing the bonus. Income tax still uses the year's total. Employer National Insurance is shown separately and does not come out of employee take-home.

Pension contributions

Personal pension entries are gross contributions, including provider relief and excluding employer payments. £100 a month and the equivalent salary percentage describe the same amount. Percentages apply to base salary, not the bonus; employer percentages also apply to full base salary rather than qualifying earnings.

Salary sacrifice reduces pay for income tax, National Insurance and payroll student loans. Net pay reduces taxable pay but leaves National Insurance pay unchanged. With relief at source, you pay £80 for a £100 gross contribution and the provider adds £20. Any further relief to claim is shown separately; it is not automatically reinvested or added to the take-home headline.

If pension contributions exceed the allowance

We keep all pension contributions when they exceed the pension annual allowance. We assume no carry forward from earlier years. The allowance shown is normally £60,000, including employer contributions. We apply the lower allowance for high earners, or the money purchase annual allowance when you select it. Salary sacrifice is assumed to be an arrangement made after 8 July 2015.

The charge uses income-tax bands on the excess above the allowance. On the Pay page, it appears separately and reduces the money available to spend. It is included in the tax totals. We assume that you pay the charge personally, rather than through Scheme Pays. Payroll income tax, National Insurance and student loan deductions do not change because of the charge.

The tax-relief limit based on relevant UK earnings is separate from the annual allowance. The retirement planner checks proposed contributions against the earnings figure it knows. A contribution above the annual allowance can still be allowed, with a tax charge.

Dividends and other income

Other taxable income is added to pay, followed by dividends. We calculate the extra income tax each adds, including any loss of Personal Allowance. The dividend allowance is a zero-rate slice that still occupies tax bands. Dividend rates and band positions are UK-wide, including for Scottish taxpayers.

Student loan repayments can jump around £2,000 a year of income outside your job, because Self Assessment may then count that income towards repayments. The extra repayment appears separately from payroll deductions. The High Income Child Benefit Charge uses adjusted net income including dividends and other income, and is reported separately from the take-home headline.

Retirement projection

When can I retire?, Retire early and How much do I need? use the same monthly calculation. Your retirement budget is money available to spend after the taxes modelled here, in today’s money. We test whether your pension and investments can fund it through your chosen end age, 95 by default.

The headline finds the pension contribution needed for your chosen retirement age. The age comparison keeps the other figures fixed. The chart shows the resulting saving plan, then withdrawals through retirement. “See what could change” compares that plan with your dial settings. These are estimates under your assumptions, not guaranteed retirement dates.

How savings build

We track pensions, ISA investments and investments outside an ISA separately. Monthly contributions stop at the retirement age shown on each curve. Salary, bonus and company dividends also stop. New investment saving uses the remaining £20,000 annual ISA allowance first; the surplus goes outside an ISA. Existing ISA balances are not limited to £20,000. ISA rules.

Contributions arrive at the start of each working month. Growth compounds monthly, after fees. Contributions rise with inflation plus any extra increase you choose. The dividend yield is part of the total investment return, not an additional return. Dividends are reinvested and their tax is accounted for outside an ISA.

How withdrawals and tax work

Each month in retirement, we take the same percentage from each accessible pot and calculate the withdrawal needed to meet your spending target after tax. Before age 57, the pension is unavailable, so investments outside the pension must cover any shortfall. This proportional approach is an assumption, not a search for the most tax-efficient withdrawal order.

ISA withdrawals are tax-free. Pension withdrawals use your remaining tax-free entitlement; the taxable part shares your income-tax bands with State Pension and any other pension income. The model tracks pension money for which tax-free cash has already been taken. Tax on pension income.

For investments outside an ISA, we deduct the corresponding purchase cost from sale proceeds to calculate gains. We account for the annual CGT exemption, losses and the income-tax band space used by other income. The purchase value must describe the investments you still hold; it can exceed their current value. An estimate is allowed and is identified beside the result. Capital Gains Tax rates and examples.

State Pension and other pension income start at their specified ages and help fund spending. Surplus income is reinvested. If you supply NI qualifying years and choose to keep adding them, they accrue only until each tested retirement age, capped at State Pension age. Without NI details, we assume the full State Pension. The simplified qualifying-years estimate does not cover every pre-2016 entitlement adjustment; check your official forecast.

Contributions and the annual allowance

The required-contribution calculation keeps employer contributions and other monthly investments fixed while it finds the personal contribution that reaches the target. All pension contributions remain invested, including amounts above the annual allowance.

The retirement projection does not deduct pension annual allowance tax charges. It keeps all contributions invested and flags when your entered or illustrated contributions may exceed the allowance, including a lower allowance for high earners or when the money purchase annual allowance applies. The warning assumes no carry forward from earlier years. It is a check of the figures being explored, not a prediction of every future year's allowance.

An adviser could help you make the most of your allowances and plan how you save. Use “Explore your next move” on the retirement page to see the next steps. The local review version previews a callback questionnaire; the published version opens an adviser guide. Neither currently books a meeting. If a charge is payable, it would reduce the money available unless funded separately. The Pay page includes an estimated charge; the retirement figures exclude it.

In salary mode, the opening plan cannot require personal pension contributions above salary plus bonus. Dividends do not increase that limit. Monthly investments are checked against take-home income, and a warning appears if the proposed pension leaves nothing for living costs. Direct take-home entry can project existing assets and entered saving, but cannot establish eligibility for extra pension tax relief from unknown earnings. These checks do not establish affordability or suitability.

Time, growth and inflation

The growth and fee dials apply throughout the projection, before and after retirement. Displayed balances are adjusted for inflation. Tax bands and allowances remain fixed at the selected tax-year values in pounds; future tax changes are unknown. Taxes are tracked in an annual ledger with monthly settlement, rather than reproducing the timing of every PAYE or Self Assessment payment.

What the projection does not claim

Growth scenarios are illustrations, not probabilities. Steady returns do not show the effect of market falls near retirement. Funding through age 95 does not guarantee income beyond that age or leave a reserve for care costs or inheritance. The model excludes pension annual allowance charges, student loan repayments during retirement, defined-benefit pension accrual and future tax changes. The same growth assumptions apply to each investment pot. For 2024/25, the CGT calculation uses the later 18% and 24% rates throughout, rather than modelling the October transition. Open the retirement calculator to see the figures for your inputs.

The pension-pot illustration

The separate pension calculator projects contributions and growth after fees and inflation. Its income illustrations multiply the projected pot by a withdrawal-rate assumption, before withdrawal tax.

Sources and checks

Student loan repayments have separate payroll and self-assessment rules.

What we test

Tests cover tax-band boundaries, pension methods, bonus timing, loan deductions and income reconciliation. Retirement tests cover pot growth, the State Pension bridge, pension access, allowance warnings, funding shortfalls and the contribution search. Those checks test the stated model; they cannot verify assumptions about future markets or legislation.

Limits of the calculation

Pay does not cover self-employed National Insurance, a full benefits-in-kind calculation, savings-interest taxation or every tax relief. Pension and retirement results are arithmetic illustrations, not personal financial advice.