Salary sacrifice
UK tax glossary · Last reviewed: April 2026
With salary sacrifice, you agree to reduce gross salary in exchange for employer-provided benefits, commonly pension contributions. Because pay is lower before tax is calculated, you save Income Tax and employee NI on the sacrificed amount.
Employers also save employer NI (15% in 2026/27) on the sacrificed amount. Many employers pass some or all of that saving into your pension — this can be worth 6–15% extra on top of your contribution.
Always confirm scheme rules before joining: salary sacrifice can reduce your qualifying pay for mortgage applications, statutory maternity/paternity pay calculations, and some life assurance policies.
Worked example
Gross salary: £40,000. Sacrifice £200/month into pension. New gross: £37,600. Income Tax saved: £200 × 20% = £40/month. NI saved: £200 × 8% = £16/month. Total saving: £56/month — your £200 sacrifice actually costs £144 in take-home pay.
Common questions
Can I salary sacrifice above the annual pension allowance?
Technically yes, but contributions above £60,000 per year (the annual allowance in 2026/27) trigger a tax charge, cancelling the saving. Check with your pension provider before sacrificing large sums.
Does salary sacrifice affect my State Pension?
Only if your salary drops below the Lower Earnings Limit (£6,396/year). Above that, NI contributions still qualify and your State Pension record is unaffected.
Related resources
TaxHelper provides general information based on published HMRC rates and guidance. It is not regulated financial or tax advice. For decisions involving significant sums, complex circumstances, or if you are unsure, speak to a qualified accountant or HMRC directly.