Autumn Budget 2025 took direct aim at one of the most reliable National Insurance savers in payroll: salary sacrifice into pensions. From April 2029, sacrificing salary or bonus into a pension only keeps its National Insurance exemption on the first £2,000 a year. Everything sacrificed above that is taxed for National Insurance purposes as if it had been paid in cash. It's a long runway before it lands, which is exactly the point — it gives property and construction companies running staff pension schemes or director bonus sacrifice time to plan around it, provided they start now rather than in 2028.
How the cap actually works
Salary sacrifice works by an employee giving up an amount of salary or bonus in exchange for the employer paying that amount into their pension instead. Because the sacrificed amount is never paid as cash earnings, it has always escaped both employee and employer National Insurance, on top of the income tax relief a pension contribution would attract anyway. That double saving, on National Insurance as well as income tax, is what made it such an efficient way to reward staff and directors.
From April 2029, that National Insurance exemption is capped at £2,000 of sacrificed salary per employee per year. Sacrifice up to £2,000 and the arrangement works exactly as it does today. Sacrifice more than that and the excess is subject to employee and employer National Insurance in the same way as ordinary pay, even though the money still ends up in the pension rather than the employee's bank account.
Income tax relief on the pension contribution is untouched
It's worth being precise about what this cap does and doesn't do, because it's easy to conflate with a wider attack on pension tax relief. The cap only removes the National Insurance exemption above £2,000. It says nothing about income tax: an employer pension contribution, sacrificed or not, has never been treated as taxable income for the employee, so income tax relief on the contribution itself carries on as before, subject to the normal annual allowance. What changes is purely the National Insurance treatment of the slice above the threshold.
Direct employer contributions aren't affected
The cap targets sacrifice specifically, not employer pension contributions generally. If a property company simply makes an employer contribution to a director's or employee's pension without any salary or bonus being given up to fund it, that contribution was never subject to National Insurance in the first place and stays outside this change entirely. The distinction matters for structuring: a company that wants to keep rewarding staff and directors through pension without running into the cap can look at increasing direct employer contributions rather than relying on sacrifice above £2,000, and get broadly the same outcome without triggering the new charge.
Where this bites in a property or construction business
Two groups feel this most. First, companies running a salary sacrifice pension scheme as a genuine staff benefit, commonly for site managers, quantity surveyors, project managers and admin staff on salaries well above the auto-enrolment minimum, where meaningful amounts are routinely sacrificed each year. Second, directors and senior staff who sacrifice year-end bonuses into pension specifically to avoid National Insurance on a lump sum, a common move in owner-managed property companies where profit is uneven and a good year produces a bonus worth sheltering. Both groups currently get the full National Insurance saving on the whole amount; from April 2029, only the first £2,000 of it does.
What to do with four years' notice
Nothing needs to change today, and nothing should change in a rush. But payroll software, pension scheme rules and staff handbooks that reference salary sacrifice will all need updating before 2029, and it's worth modelling now whether your current scheme design still makes sense once only the first £2,000 carries the National Insurance saving. For a director thinking about routing a large bonus through sacrifice, it's worth checking whether that plan still holds once the cap applies, or whether a mix of direct employer contribution and cash bonus ends up doing the same job more efficiently after 2029.
Common questions
What is the salary sacrifice pension cap announced at Autumn Budget 2025?
From April 2029, the amount an employee can sacrifice from salary into a pension while keeping the National Insurance exemption is capped at £2,000 a year. Any amount sacrificed above that figure is subject to employee and employer National Insurance contributions in the same way as ordinary cash earnings, even though it is still paid into the pension.
Does the cap remove income tax relief on pension contributions too?
No. The cap only removes the National Insurance exemption above £2,000. Employer pension contributions, including the amount above the cap, are not treated as taxable income for the employee, so income tax relief on the contribution itself is unaffected. It is specifically the National Insurance saving that disappears above the threshold.
Does this affect ordinary employer pension contributions that aren't salary sacrifice?
No. A direct employer contribution that isn't funded by the employee giving up salary or bonus was never subject to National Insurance in the first place, so it isn't touched by this cap. The change only targets contributions made by converting what would otherwise have been salary or bonus into a pension contribution to avoid National Insurance on that portion.
Why is a 2029 change relevant to a property company now?
Salary sacrifice pension schemes and bonus sacrifice arrangements are often set up as multi-year commitments, and pension providers, payroll software and staff handbooks all need updating well before the cap bites. Property and construction companies that run generous salary sacrifice schemes for site managers, surveyors or admin staff, or that route director bonuses through sacrifice, have time to review the arrangement now rather than scrambling in 2029.
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.