Quick answer
Salary sacrifice means giving up part of your salary in return for a benefit your employer pays for – usually extra pension, an electric car or a bike. Because the sacrificed pay is no longer salary, you pay no Income Tax and no National Insurance on it. In 2026/27 a basic-rate taxpayer saves about 28p of every £1 sacrificed, and a higher-rate taxpayer about 42p. From 6 April 2029, only the first £2,000 a year of pension salary sacrifice will be free of National Insurance.
How Salary Sacrifice Works
You agree to a change to your employment contract: your salary goes down, and your employer provides a benefit worth the same amount (or more). Your payslip shows the lower salary, and Income Tax and National Insurance are worked out on that lower figure.
Your employer also pays less employer National Insurance (15% above £5,000 a year in 2026/27). Some employers pass part or all of that saving into your pension.
What You Can Get Through Salary Sacrifice
Since 2017, only a handful of benefits keep their full tax and NI advantage when provided through salary sacrifice:
- Pension contributions – by far the most common.
- Cycle to Work – bikes and safety equipment.
- Electric and ultra-low emission cars (75g/km CO2 or less) – taxed on the low company car benefit rate rather than the salary given up.
- Workplace nurseries, and childcare vouchers for schemes that started before October 2018.
- Pensions advice paid for by your employer.
Other perks, such as gym memberships or phones, can still be offered through salary sacrifice, but they are taxed on whichever is higher – the salary given up or the benefit’s normal taxable value – so there is usually little or no saving.
Pension Salary Sacrifice: How Much You Save
Figures for 2026/27 in England, Wales and Northern Ireland:
| Salary | Sacrificed into pension | Drop in your take-home pay | Tax and NI saved |
|---|---|---|---|
| £30,000 | £1,200 a year (£100 a month) | £864 | £336 |
| £50,000 | £1,200 a year | £864 | £336 |
| £60,000 | £1,200 a year | £696 | £504 |
| £110,000 | £10,000 a year | £3,800 | £6,200 |
The last row shows the biggest win. Sacrificing £10,000 brings income from £110,000 down to £100,000, which restores the Personal Allowance lost in the “60% tax trap”. You also keep access to Tax-Free Childcare and 30 hours of free childcare, which are withdrawn once adjusted net income goes over £100,000. Read more in our guide to how the £12,570 Personal Allowance works.
Salary sacrifice vs paying in normally
If you pay into a pension in the usual way, you still get Income Tax relief – but you still pay National Insurance on that money. Salary sacrifice also saves the NI:
- Basic-rate taxpayer: extra saving of 8p per £1 (the employee NI rate).
- Higher-rate taxpayer: extra saving of 2p per £1.
If your employer adds its 15% NI saving to your pension, the pot grows further at no cost to you.
The 2029 Change: A £2,000 Cap on NI Savings
The National Insurance Contributions (Employer Pensions Contributions) Act 2026 became law in April 2026. From 6 April 2029:
- The first £2,000 a year of pension contributions made through salary sacrifice stays free of National Insurance.
- Anything above £2,000 will be subject to both employee and employer National Insurance.
- Income Tax relief is not affected – sacrificed pay still escapes Income Tax.
- Ordinary employer pension contributions (not through salary sacrifice) remain free of NI.
Until April 2029 the current rules apply in full. If you sacrifice more than £2,000 a year, expect your take-home pay to fall slightly in 2029/30, and check whether your employer changes how its scheme works. Detailed regulations are still to be published.
Electric Car Salary Sacrifice
An electric company car through salary sacrifice is taxed on the company car benefit rate – 4% of the list price in 2026/27, rising to 5% in 2027/28 – rather than on the salary you give up.
Example: a £40,000 electric car with a lease cost of £500 a month (£6,000 a year), including insurance and servicing.
| Basic-rate taxpayer (£40,000) | Higher-rate taxpayer (£60,000) | |
|---|---|---|
| Salary sacrificed | £6,000 | £6,000 |
| Tax and NI saved | −£1,680 | −£2,520 |
| Company car tax (£40,000 × 4% × tax rate) | +£320 | +£640 |
| Real yearly cost | £4,640 (£387 a month) | £4,120 (£343 a month) |
Before signing, check the early termination terms – what happens if you leave your job or go on long-term leave. See our full guide: how much is a company car really worth?
Cycle to Work
You get a bike and safety equipment through your employer and repay it from your gross salary, usually over 12 months. On a £1,000 bike a basic-rate taxpayer saves about £280 and a higher-rate taxpayer about £420. At the end of the hire you can usually buy the bike for a small final payment or extend the agreement.
The Downsides to Check First
- Minimum wage: salary sacrifice cannot take your cash pay below the National Minimum Wage, so lower earners may not be able to join.
- Mortgages and loans: lenders may look at your lower salary. Many accept your pre-sacrifice salary with a letter from your employer – ask first if you are applying.
- Statutory pay: Statutory Maternity, Paternity and Sick Pay are based on your actual earnings, so a lower salary can reduce them. If earnings fall below the Lower Earnings Limit (£129 a week in 2026/27), you could lose entitlement.
- Life cover and pay-linked benefits: check whether death-in-service, overtime rates and pay rises are based on your old or new salary. Many employers use a “notional” pre-sacrifice salary.
- Locked in: you can usually only change the amount at set times, such as once a year or after a life event.
- Pension access: money in a pension cannot normally be taken until age 55 (57 from April 2028).
How to Set It Up
- Ask HR or payroll whether a salary sacrifice scheme is offered, and for which benefits.
- Ask whether the employer shares its National Insurance saving with you.
- Check the effect on your mortgage plans, statutory pay and life cover.
- Work out the change to your take-home pay. Our pay rise and take-home calculator lets you compare two salaries side by side.
- Sign the contract variation and check your first payslip afterwards.
Frequently Asked Questions
Is salary sacrifice worth it?
For most employees who can afford to save more into a pension, yes: you save Income Tax and National Insurance, and your employer may add its NI saving too. Check the downsides above first, especially if you are applying for a mortgage or planning parental leave.
Does salary sacrifice reduce my take-home pay?
Yes, but by less than the amount you sacrifice. A basic-rate taxpayer sacrificing £100 a month sees take-home pay fall by about £72.
What is the 2029 salary sacrifice cap?
From 6 April 2029, only the first £2,000 a year of pension contributions through salary sacrifice will be free of National Insurance. Contributions above that will pay employee and employer NI, but still get Income Tax relief.
Can salary sacrifice affect my student loan?
Yes, in your favour: student loan repayments are worked out on your earnings after the sacrifice, so they fall too.
Can I use salary sacrifice to get under £100,000?
Yes. Sacrificing salary into a pension reduces your adjusted net income, which can restore your Personal Allowance and keep Tax-Free Childcare. It is one of the most effective legal ways to avoid the 60% tax trap.