Salary Sacrifice: Is It Worth It?

Salary sacrifice is an arrangement where you give up part of your gross salary in exchange for a non-cash benefit — usually a pension contribution — saving both Income Tax and National Insurance on the sacrificed amount. It is one of the most tax-efficient strategies available to UK employees.

How It Works

Rather than earning £50,000 and paying pension contributions from your net pay, you agree with your employer to reduce your contractual salary to £47,500. Your employer pays £2,500 directly into your pension. Because that £2,500 was never part of your gross salary, neither you nor your employer pays tax or NI on it.

Real Example: £50,000 Salary, 5% Pension

What Else Can Be Sacrificed?

• Cycle to Work scheme — bikes up to £1,000 (more for e-bikes)
• Electric vehicle schemes — significant benefit-in-kind savings, especially for higher earners
• Childcare vouchers — closed to new entrants since 2018 but still active for existing members

Watch Out For

Salary sacrifice reduces your contractual salary. Mortgage lenders use this figure when assessing affordability — a large sacrifice may reduce your borrowing capacity. Also: your post-sacrifice salary must not fall below the National Minimum Wage for your age.