Is Pension Salary Sacrifice at Risk in the Autumn Budget 2025?
Published / Last Updated on 14/06/2025
HMRC has completed its review of pensions salary sacrifice as part of the Governments need to close tax gaps and loopholes in the UK tax system to increase revenue, close gaps and cut costs.
What is Salary Sacrifice?
For many higher earners paying 40% and 45% and even 48% in Scotland, it has become popular for employees to ask their employers to reduce their wages, thereby cutting both their own income tax and national insurance contributions liability but also their employers national insurance liabilities.
Unlike things like private mileage, private medical insurance and company cars that are ‘benefits in kind’ and subject to income taxes and for some, national insurance contributions, employer pension contributions are not.
This means you can sacrifice salary in exchange for additional employer pension contributions but suffer no income taxes or employer/employee national insurance contributions. This has reduced revenue to HM Treasury.
Will the Government act in the Autumn 2025 Budget?
We know that as part of its election manifesto, Labour committed to not directly increasing taxes on ‘working people’, limiting salary sacrifice would allow the Government to raise more revenue and still claim they have not increased taxes on working people.
Needless to say, we think this is coming.
What could the Government do to Salary Sacrifice?
We suggest the government will cap salary sacrifice to say between £2,000 to £5,000 pa. They may even restrict the ‘relief’ gained by salary sacrifice by including it for national insurance contributions or even make an adjustment in our tax returns for employer contributions over a certain % of our salary.
There is a need to encourage us all to save in pensions for retirement as well as a need to increase government revenue. We suggest that easiest way would be to cap the amount of salary that can be sacrificed.
Watch out for the Autumn Budget 2025.
