Answers · UK 2025/26

What is salary sacrifice and is it worth it?

Salary sacrifice swaps part of your gross pay for a benefit such as pension contributions, saving Income Tax and National Insurance. A basic-rate taxpayer saves 28% (20% tax + 8% NI) and a higher-rate taxpayer 42% on the sacrificed amount for 2026/27.

Last updated: 1 June 2026Last reviewed: 1 June 2026How we verify

Full answer

Salary sacrifice means giving up part of your gross salary in exchange for a non-cash benefit — most commonly pension contributions, but also electric cars, cycle-to-work schemes and childcare. Because the money never counts as taxable pay, you avoid both Income Tax and the 8% (or 2% above £50,270) employee National Insurance on it, and your employer saves 15% employer NI, which many pass back into your pension. Worked example: a higher-rate taxpayer sacrifices £5,000 into their pension. They lose £5,000 of gross pay but would only have kept £2,900 of it after 40% tax and 2% NI, so the real cost of putting £5,000 into the pension is just £2,900 — a 42% saving. A basic-rate taxpayer sacrificing £1,000 saves 28%, keeping £720 net but getting £1,000 invested. Is it worth it? Usually yes for pensions, especially for higher earners and those near £60,000 (cutting the Child Benefit charge) or £100,000 (reinstating the Personal Allowance). The main downsides are reduced take-home pay now and a lower salary figure for mortgages or other statutory benefits. The savings work the same in Scotland, scaled to Scottish tax rates. Use the Salary Sacrifice calculator to compare your net pay before and after.