Salary Sacrifice UK 2026/27 — Complete Guide
9 min read · Published 2026-06-19 · Reviewed 2026-06-19
Salary sacrifice — also called salary exchange — lets you swap part of your gross pay for a workplace benefit. Because the swap happens before tax is calculated, you save both income tax and National Insurance on the sacrificed amount. This guide covers how it works, what you save at each tax band, and what to check before you set one up.
To see your own numbers straight away, use the salary sacrifice calculator.
What is salary sacrifice?
Your employer reduces your contractual gross salary by an agreed amount, then provides a benefit of the same value — typically pension contributions, an electric vehicle lease, or a cycle-to-work voucher.
Because your gross pay falls before tax is applied, you and your employer both pay less National Insurance. You also pay less income tax. This makes the benefit cheaper than buying the same thing from your net pay.
HMRC must approve the arrangement. Most large employers run at least one scheme; if yours does not, the scheme needs to be set up before you can use it.
How much do you save?
Your saving depends on your marginal tax rate:
| Tax band | Income | Saving per £100 sacrificed |
|---|---|---|
| Basic rate | £12,571–£50,270 | £28 (20% tax + 8% NI) |
| Higher rate | £50,271–£100,000 | £42 (40% tax + 2% NI) |
| 60% trap | £100,001–£125,140 | £62 (effective 60% tax + 2% NI) |
| Additional rate | £125,141+ | £47 (45% tax + 2% NI) |
Example: A higher-rate taxpayer sacrifices £5,000 into their pension. They save £2,100 in tax and NI, so the £5,000 pension contribution costs them £2,900 from their take-home pay.
Use the calculator to see your saving →
Pension salary sacrifice
Pension salary sacrifice (also called salary exchange) is the most common type. Your employer routes your pension contribution through the payroll as a salary reduction, rather than you paying it from net pay.
How it compares to relief at source
The alternative — paying into a pension directly, then having the provider claim basic rate tax relief — is called relief at source. A higher-rate taxpayer using relief at source must separately claim the extra 20% through Self Assessment. The same taxpayer using salary sacrifice gets the full 42% saving automatically, with no claim required.
Using the same £5,000 example: sacrifice costs £2,900 from take-home pay; relief at source costs £3,200 (even after the Self Assessment rebate).
Annual allowance
You can sacrifice up to the annual allowance — £60,000 in 2026/27, or 100% of your earnings if lower. This covers all pension contributions, including employer payments. Very high earners with adjusted income above £260,000 may face a reduced tapered allowance; if that applies to you, a financial adviser can help.
Employer NI passthrough
Your employer saves 15% National Insurance on the sacrificed amount. On a £5,000 sacrifice that is £750. Some employers pass this on as an extra pension contribution — ask your HR team whether your scheme includes it.
Electric vehicle salary sacrifice
You give up salary to fund a lease on an electric vehicle. The car is treated as a company car benefit, so you pay Benefit in Kind (BIK) tax on it. For zero-emission vehicles in 2026/27, the BIK rate is 4% of the car's P11D list price.
Example: A £40,000 electric vehicle on a £500 per month sacrifice.
- A higher-rate taxpayer saves 42%, so the sacrifice costs £290 per month from take-home pay.
- BIK tax: 4% × £40,000 = £1,600 per year; at 40% tax that is £640 per year, or about £53 per month.
- Total monthly cost: around £343.
- A personal lease or PCP on the same car typically costs £450–£550 per month.
The BIK rate rises to 5% in 2027/28 and 7% in 2028/29. If you are considering a longer scheme, check with your employer's scheme provider whether the rate is locked in at signing.
Cycle-to-work
You sacrifice salary to hire a bicycle and safety equipment, then purchase it at fair market value at the end of the hire period. The saving is your full marginal tax and NI rate — 28% for a basic rate taxpayer.
Standard schemes cap spending at £1,000. Enhanced schemes through providers such as Cyclescheme or Evans Cycles allow up to £2,500. Spending above £1,000 requires your employer to be signed up to an enhanced scheme.
Things to check before you sacrifice
National Minimum Wage floor Your cash pay after sacrifice cannot fall below the National Minimum Wage (£12.71 per hour in 2026/27 — roughly £24,785 per year on a standard 37.5-hour week). The salary sacrifice calculator flags a warning if your sacrifice would breach this.
Mortgage affordability Lenders assess affordability using your contractual gross salary — the post-sacrifice figure. A large sacrifice could reduce the amount you can borrow. Some lenders add back pension sacrifice; others do not. Speak to a mortgage broker before committing to a sizeable arrangement.
Statutory maternity and paternity pay Statutory Maternity Pay (SMP) and Statutory Paternity Pay (SPP) are based on your qualifying earnings — your post-sacrifice salary. A large sacrifice arrangement reduces statutory pay if you take parental leave.
State Pension NI contributions are calculated on post-sacrifice earnings. If sacrifice pushes your pay below the Lower Earnings Limit (£6,500 in 2026/27), you may lose the NI credits that count towards your State Pension. In practice, this only affects people on very low salaries.
Employer NI saving
When you sacrifice salary, your employer saves 15% employer NI on the sacrificed amount. For a £5,000 sacrifice that is £750. Some employers pass this on as an additional pension contribution; others do not. If your scheme does not include this passthrough, it is reasonable to ask.
The salary sacrifice calculator has a toggle to model what happens when your employer passes on some or all of their saving.
Salary sacrifice vs relief at source
| Salary sacrifice | Relief at source | |
|---|---|---|
| Who claims the relief | Payroll — automatic | Pension provider (basic rate); you claim higher rate via Self Assessment |
| Higher-rate saving | Full 42% automatically | Requires a Self Assessment claim for the extra 20% |
| Flexibility | Requires an HR arrangement change | Can change contributions any time |
| Self-employed | Not available | Available |
| Near NMW floor | May not be possible | No restriction |
For most employed higher-rate taxpayers, sacrifice gives a larger immediate saving with less administration. Relief at source is the only option if you are self-employed, or if sacrifice would take your pay below the NMW floor.
Use the pension optimiser to compare both approaches with your own figures.
Frequently Asked Questions
What is salary sacrifice and how does it work?
Your employer reduces your contractual gross salary by an agreed amount and provides a benefit of the same value in return. Because your gross pay is lower, you pay less income tax and National Insurance. HMRC must approve the arrangement, and your employer needs to have a scheme in place.
How much tax and NI do I save with salary sacrifice?
It depends on your tax band. Basic rate taxpayers save 28p per £1 sacrificed (20% tax + 8% NI). Higher rate taxpayers save 42p (40% + 2%). Those in the 60% personal allowance trap save 62p. Additional rate taxpayers save 47p (45% + 2%).
What is the difference between salary sacrifice and relief at source?
With salary sacrifice, pension contributions come out of your gross pay before tax — you get the full saving at your marginal rate, automatically. With relief at source, you contribute from net pay, the pension provider claims back basic rate tax, and you must separately claim any higher-rate relief through Self Assessment. Sacrifice is simpler and more immediate for higher-rate taxpayers.
Does salary sacrifice reduce my statutory maternity or paternity pay?
Yes. Statutory Maternity Pay and Statutory Paternity Pay are calculated on your qualifying earnings — your post-sacrifice salary. A large sacrifice arrangement will reduce your statutory pay if you take parental leave.
Does salary sacrifice affect my mortgage application?
It can. Most lenders use your contractual gross salary — the post-sacrifice figure — for affordability calculations. Some lenders will add back pension sacrifice contributions; others will not. Check with a mortgage broker before committing to a large arrangement.
What is the National Minimum Wage floor for salary sacrifice?
Your cash pay after sacrifice cannot fall below the National Minimum Wage. For 2026/27 this is £12.71 per hour — roughly £24,785 per year on a 37.5-hour week. The salary sacrifice calculator warns you if your sacrifice would breach this.
How does Benefit in Kind tax work on EV salary sacrifice?
When you take an electric vehicle through salary sacrifice it is treated as a company car, so you pay Benefit in Kind (BIK) tax on it. For zero-emission vehicles in 2026/27, the BIK rate is 4% of the car's P11D list price. Despite this charge, EV schemes are usually cheaper than a personal lease because of the combined tax and NI savings on the sacrificed salary.
How much can I sacrifice into my pension each year?
The annual allowance is £60,000 in 2026/27, or 100% of your earnings if lower. This covers all contributions across all your pension pots, including employer contributions. Very high earners with adjusted income above £260,000 may face a reduced tapered allowance.
Can my employer pass on their National Insurance saving to me?
Yes. When you sacrifice salary, your employer saves 15% employer NI on the sacrificed amount. Some employers pass this on as an extra pension contribution; others keep it. Check your scheme rules or ask HR.
Does salary sacrifice affect my State Pension?
Only if sacrifice brings your earnings below the Lower Earnings Limit (£6,500 in 2026/27). Above that figure, NI credits count towards your State Pension regardless of the sacrifice amount. Most people are unaffected.
Can I stop or change my salary sacrifice arrangement?
This depends on your employer's scheme rules. Most arrangements require notice before the start of a new tax year or pay period. Electric vehicle schemes are usually fixed for the length of the lease contract. Check the terms with HR before signing up.
Is salary sacrifice available to Scottish taxpayers?
Yes. The mechanism works the same way. Scottish taxpayers pay income tax at different rates — starter, basic, intermediate, higher, advanced, and top — so savings vary by band. The salary sacrifice calculator applies Scottish rates automatically when you select Scotland as your region.