Pension Salary Sacrifice Optimiser

£60,000 and £125,140 are both smooth tapers. The High Income Child Benefit Charge phases in a percentage point at a time as income rises from £60,000 to £80,000, and the personal allowance shrinks by £1 for every £2 earned between £100,000 and £125,140. Cross either boundary by a single pound and almost nothing changes. The numbers just keep sliding along the same slope they were already on.

£100,000 is not like that. Funded childcare hours and Tax-Free Childcare are tested against a hard threshold: at or under £100,000 of adjusted net income, the full entitlement applies; one pound over, and it's gone completely, for every child, not scaled down. For a household relying on funded hours, that single pound can be worth thousands of pounds a year, which is exactly the kind of jump the marginal rate chart above is built to surface, rather than smooth over.

The threshold is assessed on each parent's own income individually, not combined household income, and it applies twice, once for the 30 hours entitlement, and again separately for Tax-Free Childcare, though in practice they share the same £100,000 line.

Salary sacrifice means agreeing with your employer to reduce your contractual salary by a set amount, with that amount paid into your pension instead, as an employer contribution, not a deduction from your pay. Because the sacrificed amount never counts as your income in the first place, it doesn't just avoid income tax and National Insurance on that slice of pay; it also lowers the adjusted net income figure used to test every threshold on this page.

That's the mechanism behind every cliff-edge calculation above: sacrificing £5,000 doesn't cost £5,000 of take-home pay, because some of that would have been taxed away anyway, often at 40% or more, sometimes with an extra effective rate on top from a taper. The real cost is whatever's left after that tax relief, which is exactly what the “costs £X/month less take-home” figure in each cliff card reflects.

This only applies to true salary sacrifice arranged through your employer. Personal pension contributions paid after tax (relief-at-source) work differently. They don't reduce your salary for these tests the same way, so if you're unsure which type you have, check with your payroll or HR team before relying on these numbers.

Above £100,000, the £12,570 personal allowance starts shrinking: £1 lost for every £2 earned, reaching zero at £125,140. Losing £1 of tax-free allowance means that £1 becomes taxable at the 40% higher rate instead. So for every extra £2 earned in this band, roughly £0.80 in higher-rate tax is paid on the earnings themselves, plus another £0.40 from the lost allowance, an effective marginal rate around 60%, well above the 40% headline rate either side of it.

It rarely gets mentioned outside specialist tax guidance because there's no separate “60% tax band” on any official rate table. It's an emergent effect of two rules interacting, not a rate anyone sets directly. The marginal rate chart above is built specifically to make that band visible, alongside the far sharper spike at exactly £100,000 where childcare support is lost outright.

Sacrificing enough to drop back under £100,000 removes both effects at once: the childcare cliff and the 60% band, which is usually why the £100,000 threshold offers the strongest net position of the three modelled here, when there are young children in the household.

Pension contributions have their own yearly cap, the Annual Allowance, £60,000 for most people in the 2026/27 tax year, covering contributions from every source combined. Contribute more than the allowance and a tax charge can apply, potentially cancelling out some of the saving this calculator shows.

For very high earners it gets smaller still: once “threshold income” is over £200,000 and “adjusted income” is over £260,000, the allowance tapers down by £1 for every £2 of adjusted income above that, to a floor of £10,000. Here's the twist relevant to this calculator: salary-sacrificed pension contributions count as an employer contribution for this specific test, and adjusted income is measured broadly including employer pension contributions. So for someone with no other separate employer contribution, sacrificing more doesn't pull adjusted income down the way it pulls adjusted net income down for the cliffs above.

Because checking this precisely needs details this tool doesn't collect: other income, separate employer contributions, and prior years' unused allowance that can sometimes be carried forward. It's surfaced only as a warning when your salary is comfortably in the range where it could apply. If that warning appears, it's worth checking your exact position with a financial adviser or accountant before committing to a large sacrifice. See gov.uk: Annual Allowance for the full rules.