by Asim Abbas
11 November 2026 
Salary sacrifice in 2026: how it works and the coming NI cap
Salary sacrifice in 2026: how it works and the coming NI cap
Salary sacrifice lets you give up part of your salary in exchange for a benefit, most often a bigger employer pension contribution. Both you and your employer save National Insurance.
- Saves Income Tax and NI for employees
- Employers save 15% employer NI
- NI relief on pension sacrifice capped at £2,000 from April 2029
- Can affect mortgages and statutory pay
It’s one of the most efficient ways to save for retirement, but changes announced for April 2029 will limit the NI saving on pension sacrifice.
This guide explains how salary sacrifice works now, what’s changing and what to watch for.
How salary sacrifice works
You agree a lower contractual salary, and your employer pays the difference into your pension, or provides a benefit such as an electric car or cycle to work scheme. Because your salary is lower, you pay less Income Tax and National Insurance, and your employer pays less employer NI.
Omar earns £55,000. He sacrifices £5,000 into his pension. As a higher rate taxpayer, he saves £2,000 in Income Tax and £100 in employee NI at 2%. His employer saves £750 in employer NI at 15% and may add some of it to his pension. £5,000 goes into his pension at a cost to his take-home pay of only £2,900.
Savings at different income levels
| Taxpayer | Income Tax saved | Employee NI saved |
|---|---|---|
| Basic rate | 20% | 8% |
| Higher rate | 40% | 2% |
| Income £100,000 to £125,140 | Effective 60% | 2% |
Salary after tax calculator
See take-home pay after sacrifice.
The April 2029 change
From 6 April 2029, only the first £2,000 a year of pension contributions made through salary sacrifice will be free of National Insurance. Contributions above that will be treated as earnings for NI, for both employer and employee. Income Tax relief isn’t affected. Until then, the current rules apply in full.
Other sacrifice benefits
- Electric cars: low benefit-in-kind rates make sacrifice attractive, though rates rise gradually
- Cycle to work: bikes and equipment
- Childcare vouchers: closed to new joiners since 2018
- Extra holiday: buying additional leave
Fixed-fee accountancy support
Transparent monthly packages for sole traders, landlords and limited companies. Fixed fees agreed upfront, VAT included.
Get a fixed-fee quoteCall 0161 531 4179Things to watch out for
- Your salary can’t go below the National Minimum Wage, £12.71 an hour from April 2026 for workers aged 21 and over
- Mortgage lenders may look at your reduced salary
- Statutory maternity pay and some benefits can be lower
- Life cover linked to salary may fall unless based on reference salary
For employers
Sacrifice arrangements must be set up properly, with contract changes, to be effective. With employer NI at 15% since April 2025, the savings are significant. Employers should start planning for the 2029 cap now. Our payroll team can run schemes correctly.
See HMRC’s guidance on salary sacrifice, our pension relief guide, and our salary after tax calculator.
What should I do next?
Pension or other.
Your salary can’t fall below it.
If applying soon.
Frequently Asked Questions
Is salary sacrifice worth it?
For most people, yes. You save Income Tax and NI, and your employer saves NI too.
What is changing in 2029?
From April 2029, NI relief on pension salary sacrifice is capped at £2,000 a year.
Does salary sacrifice affect my mortgage?
It can, because your contractual salary is lower. Lenders vary.
Can I sacrifice below minimum wage?
No. Your cash pay must stay at or above the National Minimum Wage.
Does salary sacrifice affect tax relief?
No. Income Tax relief on pension contributions is unchanged.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Ali Imran
I’m Ali Imran, an accountant at Wingate Accountants. I help sole traders, landlords and directors get their returns filed early and accurately, without the last-minute panic.
