How salary sacrifice works
With salary sacrifice, you agree to a lower salary and your employer gives you a benefit in return, most often an extra pension contribution. Because the sacrificed amount comes off your salary before income tax, National Insurance and student loan repayments are worked out, your take-home pay falls by less than the amount you give up.
The saving depends on your tax band. A basic rate taxpayer in England, Wales or Northern Ireland saves 20% income tax and 8% National Insurance on the amount sacrificed. Above £50,270 the National Insurance saving drops to 2%, but higher rate tax relief of 40% applies on income in that band.
Worked example
On a £40,000 salary in England in 2026 to 2027, sacrificing £2,000 a year saves £400 in income tax and £160 in National Insurance. Your take-home pay falls from £32,319.60 to £30,879.60, so the £2,000 benefit costs you £1,440 a year, or £120 a month.
On a £60,000 salary, the same £2,000 sacrifice saves £800 in income tax and £40 in National Insurance, so it costs you £1,160.
What the calculator doesn't include
Your employer also saves employer National Insurance on the sacrificed salary. Some employers add part or all of that saving to your pension, but that varies, so it isn't included here.
A lower salary can affect things linked to your pay, such as mortgage applications, life cover based on salary and some state benefits. Salary sacrifice also can't take your pay below the National Minimum Wage. Check the details of your scheme with your employer.
Inputs for the salary sacrifice calculator
Tax year
Choose 2025 to 2026 or 2026 to 2027 to use that year's income tax, National Insurance and student loan rates.
Gross salary before sacrifice (per year)
Your annual salary before the sacrifice is taken off.
Amount you sacrifice (per year)
The amount of salary you give up each year in exchange for the benefit. It can't be more than your salary.
Where you pay income tax
Scottish income tax rates apply if you live in Scotland. The income tax saving depends on which Scottish band the sacrificed salary falls in.
Student loan
Your undergraduate repayment plan, if you have one. Repayments are 9% of income above the threshold, so a sacrifice that lowers your salary also lowers what you repay. Plan 5 repayments start in the 2026 to 2027 tax year.
CALCULATOR QUESTIONS
Salary sacrifice calculator questions
How much does salary sacrifice save?
It saves the income tax, National Insurance and student loan repayments you'd have paid on the sacrificed amount. On a £40,000 salary in England, a £2,000 sacrifice saves £560 and costs you £1,440.
Is salary sacrifice better than a normal pension contribution?
Usually it saves more, because it also cuts your National Insurance. A pension paid from your salary before tax only saves income tax. Compare the two with this calculator and the salary calculator.
Does the calculator include my employer's National Insurance saving?
No. It shows the effect on your take-home pay only. Ask your employer whether they pass on any of their National Insurance saving.
Can salary sacrifice reduce my student loan repayments?
Yes. Repayments are based on your salary after the sacrifice, so they fall by 9% of the amount sacrificed if you earn above your plan's threshold.
What can I get through salary sacrifice?
Pension contributions are the most common. Some employers offer other benefits this way, such as electric cars or bikes for commuting. The tax treatment can differ by benefit, so check with your employer.