Above £100,000 the Personal Allowance is withdrawn at a rate of £1 for every £2 of income, reaching zero at £125,140. The consequence is a marginal rate that appears in no HMRC rate table: an extra £100 of salary is taxed at 40% and also drags £50 of formerly tax-free allowance into the 40% band, so £60 of that £100 goes in tax. In Scotland, where the advanced rate is 45%, the same arithmetic gives 67.5%. Add 2% National Insurance and a 9% student loan deduction and the next pound of salary can cost more than 70p.
Because sacrificed pay is never earnings, a pension contribution taken by salary sacrifice reduces the income HMRC measures the taper against. Contribute enough to bring adjusted salary back below £100,000 and the full allowance returns. The comparison below is computed by the calculator on this page, so the arithmetic is the tool’s own:
| £110,000 salary, England | No pension | 10% salary sacrifice |
|---|
| Salary measured for tax | £110,000 | £99,000 |
| Personal Allowance | £7,570 | £12,570 |
| Income Tax | £33,432.00 | £27,032.00 |
| National Insurance | £4,210.60 | £3,990.60 |
| Marginal income tax rate | 60.0% | 40.0% |
| Take home pay | £72,357.40 | £67,977.40 |
| Into the pension | £0.00 | £11,000.00 |
Take home pay falls by £4,380.00 while £11,000.00 lands in the pension. In other words the contribution costs about 39.8% of its face value, because 60.2% of it is funded by Income Tax and National Insurance that would otherwise have been paid. That is the highest rate of pension relief available anywhere in the UK system, and it exists purely because of the taper.
Two caveats worth knowing before acting on this. Salary sacrifice is a contractual change, so it cannot take your pay below the National Minimum Wage, and because it reduces the salary on record it can affect mortgage affordability assessments, statutory maternity pay and death-in-service cover that are calculated on salary. Annual and lifetime pension allowance rules also apply. This page models the payroll arithmetic, not your personal circumstances.