Jurisdiction(s):
United Kingdom

Key definition

Salary sacrifice definition

What does Salary sacrifice mean? Salary sacrifice describes a contractual change under which an employee agrees to give up part of their future cash pay in return for a non‑cash benefit, most commonly an increased employer pension contribution of equivalent value. It is a descriptive term rather than a statutory definition. In the UK, HMRC treats it under the optional remuneration arrangements regime; tax/NIC advantages have been curtailed for many benefits, but employer pension contributions via salary sacrifice remain generally tax‑ and NIC‑efficient. In Ireland, the concept is recognised in Revenue guidance; tax/PRSI/USC outcomes depend on specific statutory reliefs (for example, approved pension,...

Salary sacrifice: UK tax/NICs, OpRA, contractual validity, HMRC reporting, NMW/NLW and risks, plus April 2029 £2,000 NICs cap on pension salary exchange

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Practice notes

FORTHCOMING CHANGE:

On 26 November 2025, within Budget 2025, the government confirmed that from April 2029, only the first £2,000 a year of pension contributions made under a salary sacrifice arrangement will be outside the scope of National Insurance contributions (NICs). Amounts given up through salary sacrifice above £2,000 annually will attract both employer and employee NICs, meaning any excess over £2,000 will be treated for NICs in the same way as other employee workplace pension payments. Employer contributions remain unchanged, and income tax relief is not affected. Employers must report the total salary forgone via existing payroll systems, and HMRC has pledged to liaise with stakeholders. Further guidance will be issued ‘before April 2029’. The National Insurance Contributions (Employer Pensions Contributions) Bill 2026 will add a new subsection to section 4 of the Social Security Contributions and Benefits Act 1992, enabling regulations to deem sacrificed sums as remuneration from employment for NICs purposes. See: Policy paper: salary sacrifice reform for pension contributions and National Insurance Contributions (Employer Pensions Contributions) Bill 2026.

What is salary sacrifice?

Salary sacrifice (also called ‘salary exchange’) is...

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Lewin Higgins-Green

FTI Consulting

Lewin Higgins-Green leads FTI Consulting’s Employment Tax & Reward offering in the UK. Lewin works with clients across a wide range of sectors, with a strong focus on financial services, and advises clients on employee related tax matters, both for domestic and internationally mobile employees. Lewin is a chartered tax advisor and a member of the Employment Taxes Technical Sub-Committee of the Chartered Institute of Taxation....

Web page updated on 21/05/2026

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