Jurisdiction(s):
United Kingdom

Related legal acts

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,...

UK Salary Sacrifice and Optional Remuneration Arrangements: OpRA, NICs and 2029 pensions cap; cycle-to-work and employer-supported childcare

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Practice notes

FORTHCOMING CHANGE:

Announced on 26 November 2025 within Budget 2025, from April 2029 only the first £2,000 a year of pension contributions made under a salary sacrifice arrangement will be exempt from National Insurance contributions (NICs). Employee contributions through salary sacrifice above £2,000 per year will incur both employer and employee NICs, meaning any amount over £2,000 will, for NICs, be treated like other employee workplace pension contributions. Employer contributions are unaffected, and income tax relief is unchanged.

Employers will be required to report the total salary given up via existing payroll software, and HMRC has committed to engage with stakeholders. HMRC will provide further guidance before April 2029.

The National Insurance Contributions (Employer Pensions Contributions) Bill 2026 will insert a new subsection into section 4 of the Social Security Contributions and Benefits Act 1992, enabling the government to make regulations so sacrificed sums are treated 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 known as ‘salary exchange’)...

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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 22/05/2026

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