UK Salary Sacrifice Calculator 2025/26

What is salary sacrifice?

Salary sacrifice (also called "salary exchange") is an arrangement where you agree to give up part of your gross salary in exchange for a non-cash benefit, typically an employer pension contribution. Because the sacrifice reduces your gross pay, you pay less income tax and National Insurance. Your employer also saves on employer NI.

How does it save you money?

Without salary sacrifice, pension contributions come from your net pay (after tax and NI). With salary sacrifice, your salary is reduced before tax and NI are calculated. This means you save:

• Income tax — 20%, 40%, or 45% depending on your tax band
• Employee NI — 8% (or 2% above the upper earnings limit)
• Student loan repayments — if your reduced salary falls below the threshold

Your employer saves 15% employer NI on the sacrificed amount. Many employers pass some or all of this saving to you as an increased pension contribution.

What can you sacrifice salary for?

Common salary sacrifice benefits include:

• Pension contributions — the most common and usually the biggest saving
• Cycle to Work scheme — tax-free bike purchase up to £1,000 (or more with employer approval)
• Electric car lease — very low BIK rate (2% in 2025/26) makes salary sacrifice EVs extremely tax-efficient
• Childcare vouchers — legacy scheme (closed to new applicants) but existing users can continue

Impact on mortgage applications

Salary sacrifice reduces your contractual salary, which lenders use for affordability calculations. A £500/month sacrifice reduces your mortgage borrowing capacity by approximately £27,000 (at 4.5x salary multiple). If you're planning to apply for a mortgage, consider the timing of your salary sacrifice arrangement.

Is salary sacrifice worth it?

For most people, yes — especially for pension contributions. A higher rate taxpayer sacrificing £500/month into their pension saves around £240/month in tax and NI, meaning the £500 benefit only costs them about £260 in take-home pay. The savings are even greater for additional rate taxpayers.

The main downside is the reduced contractual salary, which affects mortgage borrowing, statutory payments (maternity/paternity pay), and some means-tested benefits. Your salary cannot be sacrificed below the National Minimum Wage.