How much can I salary sacrifice into my pension?

You can sacrifice up to 100% of your earnings into a pension, but total contributions (employer plus employee) must not exceed the Annual Allowance of £60,000 per year in 2026/27, or your total earnings if lower. Your post-sacrifice salary must also not fall below the National Minimum Wage for your age group.

Does salary sacrifice affect my mortgage?

It can. Mortgage lenders typically assess affordability based on your contracted salary — the reduced figure after sacrifice. If you are planning a mortgage application, consider whether sacrificing a large amount will push your declared income below the threshold needed to borrow what you want. Some lenders add sacrificed amounts back in; check with your broker.

Is salary sacrifice better than paying into a pension directly?

For most employees, yes. Salary sacrifice saves National Insurance as well as Income Tax on the contribution, whereas a personal pension contribution only reclaims Income Tax. A basic-rate taxpayer saves around 28% on each pound sacrificed (20% tax + 8% NI), compared to just 20% through relief at source. Higher-rate taxpayers save 42%.

UK Tax Guide — 2026/27

Salary Sacrifice Explained

Updated July 2026 HMRC 2026/27 rates Plain English

Last updated: 26 July 2026

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

How Salary Sacrifice Works

Instead of receiving, say, £2,500 of gross salary and then paying pension contributions from your take-home, you agree with your employer to reduce your contractual salary by £2,500. Your employer pays that £2,500 directly into your pension. Because it never forms part of your salary, you pay no Income Tax or National Insurance on it:

Scenario	Gross Salary	Pension In	Tax + NI Saved	Net Cost to You
Standard contribution (relief at source)	£50,000	£2,500	Tax relief only (~£500 basic rate)	£2,000
Salary sacrifice	£47,500	£2,500	Tax + NI (~£700 basic, more at higher rate)	~£1,800

What Else Can Be Salary Sacrificed?

Pension contributions are the most common use, but employers can offer salary sacrifice for:

Cycle to Work scheme — bikes and equipment up to £1,000 (or higher for electric bikes)
Electric vehicle (EV) car scheme — significant savings, especially for higher-rate taxpayers
Childcare vouchers — closed to new entrants in 2018 but still active for existing members
Extra annual leave — some employers allow sacrifice for additional holiday days

Important Limits and Considerations

Salary sacrifice reduces your contractual salary, which can affect:

Mortgage applications — lenders use your contracted salary, so sacrificing too much may reduce how much you can borrow
State benefits — some benefits are calculated on salary; check if relevant to you
Pension Annual Allowance — total pension contributions (employer + employee) must not exceed £60,000 per year or your earnings, whichever is lower
National Minimum Wage — your post-sacrifice salary cannot fall below NMW for your age group

Model the exact tax savings from salary sacrifice at your salary:

🔐 Salary Sacrifice Calculator Pension Calculator

See take-home pay before and after sacrifice:

£50,000 after tax £60,000 after tax