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,...

HMRC non‑statutory clearance request letter template: implemented salary sacrifice arrangements (UK tax and NICs), with pension salary sacrifice NICs cap from April 2029

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Precedents

FORTHCOMING CHANGE:

On 26 November 2025, as part of Budget 2025, it was confirmed that from April 2029, only the first £2,000 in each year of pension saving arranged via Salary sacrifice will be exempt from National Insurance contributions (NICs). Any employee amounts channelled through salary sacrifice above £2,000 annually will attract both employer and employee NICs, meaning any sum beyond £2,000 will, for NICs, be handled in the same manner as other staff workplace pension payments. Employer contributions remain unchanged, and income tax relief is also preserved. Employers must report the value of salary surrendered using existing payroll systems, with HMRC pledging to consult stakeholders. HMRC intends to issue additional guidance ‘before April 2029’, ahead of the April 2029 start date...

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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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