Bonus sacrifice: turn a 62%-taxed bonus into pension at full value

A bonus is taxed as ordinary pay in the month it lands — there’s no special “bonus tax”, but PAYE on a big single payment often feels punitive because the whole amount stacks on top of your salary. If that stack pushes you into the £100k–£125k zone, the arithmetic genuinely is punitive: 62% marginal deductions in England (the 60% trap), 69.5% in Scotland, more with a student loan — and if you have young children, a bonus that crosses £100,000 triggers the childcare cliff, which can cost more than the bonus itself.

What bonus sacrifice is

You agree with your employer — before the bonus is paid — to give up some or all of it in exchange for an employer pension contribution of the same amount. Because the money never becomes your pay:

no income tax, no employee NI, no student loan deduction on the sacrificed part;
your adjusted net income falls by the full amount, which is what protects childcare support, child benefit and your personal allowance;
your employer saves employer NI (15% in 2026/27) — many will add some or all of that saving to your pension if you ask. It costs them nothing.

The timing matters: HMRC expects the exchange to be agreed before you become entitled to the payment. Employers run bonus-sacrifice windows for exactly this reason — don’t miss yours.

The worked example

Parent of two, £95,000 salary, £12,000 childcare, £15,000 bonus on the way. Taking the bonus in cash pushes income to £110,000:

the slice over £100k is taxed at 62%,
Tax-Free Childcare (£2,400 here) and the free hours (say £5,000) vanish,
the family keeps roughly £6,000 of the £15,000 — and loses £7,400 of childcare support against it. Net effect: close to zero, sometimes negative.

Sacrificing £10,000 of the bonus (keeping income at £100,000) protects every benefit, and the £10,000 goes into the pension whole.

Watch the annual allowance

Pension contributions from all sources are capped by the annual allowance — £60,000 in 2026/27 (tapered for very high earners; unused allowance from the previous three years can be carried forward). A large one-off sacrifice on top of regular contributions can brush the ceiling, so check your year-to-date total before signing the sacrifice form.

One more edge: salary sacrifice can’t take your cash pay below the National Minimum Wage, which occasionally bites on large sacrifices of modest salaries.

Variable bonuses: plan for the maximum, decide at award time

Most bonuses aren’t guaranteed — “up to 15%, depending on performance”. The cliffs don’t care about your target number, only where your income actually lands at year end, so the safe plan is built on the maximum: know the sacrifice that would clear the cliff if the full bonus arrives, and make the election in the bonus-sacrifice window once the real number is announced. Your base salary position needs no action if it’s under the line on its own.

The calculator has a “variable bonus (maximum)” field for exactly this — it marks the full-bonus position on the chart and tells you the slice to sacrifice if it lands. The worked example above is preloaded below.

Try your own numbers

About you

Where you liveSets tax bands and childcare rulesGross salaryAnnual pay before tax or any deductions — the headline figure on your contract, not what lands in your bankTaxable benefits in kindP11D value: company car, private medical… Counts towards the £100k tests. 0 if noneVariable bonus (maximum)The most you might get this year if targets are hit. 0 if nonePension contributionGross annual amount landing in the pensionHow it's paidAlso saves NI and student loan — the cheapest routeStudent loanPostgraduate loan

Your household

Partner with incomeChildrenAnnual childcare spendWith registered providersValue of 30 free hoursWhat you'd pay without them

Which student loan plan am I on?

It depends on where you lived when you took the loan out, and when your course started:

Northern Ireland — always Plan 1, whatever the year.
Scotland — always Plan 4 (loans applied for through SAAS).
England — Plan 1 before Sept 2012, Plan 2 from 2012 to July 2023, Plan 5 from Aug 2023.
Wales — Plan 1 before Sept 2012, Plan 2 after (Wales doesn't use Plan 5).
Postgraduate loan — English or Welsh master's/doctoral loans only; it repays alongside your main plan. Scottish and NI postgrad loans repay through Plan 4 / Plan 1 instead.

Still unsure? Your repayment plan is shown when you sign in to your student loan account on gov.uk.

The fix

Sacrifice £35,000 into your pension

Clear the child benefit charge entirely (£60k). Each £1 landing in your pension costs you just 51p of today's money — about £1,692 a month less take-home for £2,917 a month into your pension.

If your full £15,000 bonus lands, your income reaches £110,000. Clearing the £100k cliff then takes £10,000 of pension — agree to sacrifice £10,000 of the bonus before it's paid, and you'd still come out ahead in cash and benefits.

Kept value = take-home pay + child benefit kept + childcare support with no pension contribution, for your household in England, 2026/27 tax year. Contributing moves you left; salary sacrifice lands exactly on the curve, net-pay and relief-at-source land slightly off it (NI and student loans don't fall).

Per year	No pension	+ full bonus
Take-home pay	£65,657	£72,357
≈ per month	£5,471	one-off
Income tax	£25,432 £2,119/mo	£33,432
Employee NI	£3,911 £326/mo	£4,211
Child benefit kept	£0	£0
Childcare support	£7,400	£0
Total kept value	£73,057	£72,357 −£700

"+ full bonus" = your £15,000 maximum bonus paid in cash on top of the "with pension" column, none of it sacrificed — see the bonus planner below for the keep-vs-sacrifice trade.

Your bonus (£15,000): keep it or bank it?

Separate from the cliffs above: where each £1 of the bonus goes, depending on how much you agree to sacrifice into your pension before it's paid.

Sacrifice £0 of it into your pension

Cash in hand£6,70045%
Into your pension£00%
Income tax£8,00053%
Employee NI£3002%

Cash you want in hand

More guides

The 60% tax trap: why £100k–£125k is the worst place to earn

Between £100,000 and £125,140 the personal allowance taper pushes your real marginal rate to 62% — or 69.5% in Scotland. Here's the mechanics and the fix.

The £100k childcare cliff: how £1 of pay can cost you £8,000

Earn £100,001 and you lose free childcare hours and Tax-Free Childcare in full — a hard cliff, not a taper. What it costs a parent of two and the exact fix.

Keep your child benefit: beating the £60k–£80k charge

The High Income Child Benefit Charge claws back 1% of your child benefit per £200 over £60,000. What it's worth, who's tested, and how salary sacrifice keeps it.

Student loans and the tax traps: the 51%–71% graduate rates

Plan 1, 2, 4, 5 and postgraduate loans add 6–15% to your marginal rate — and they stack with the child benefit charge and the 60% taper. The 2026/27 thresholds and what actually reduces them.

Scotland's £100k trap: 69.5% marginal tax, but no childcare cliff

Scottish taxpayers face a harsher personal allowance taper — 67.5% plus NI — but Scotland's universal funded hours mean the £100k childcare cliff is much shallower. The 2026/27 bands and what changes.

2026/27 tax year, childcare with registered providers. Your nation sets the income tax bands (Scotland's six-band schedule vs rUK) and the childcare rules: England and Wales lose free hours over £100k, Scotland's funded hours are universal, Northern Ireland has Tax-Free Childcare only. Child benefit is charged on the household's higher earner, and childcare support needs both parents under £100k. This is a modelling tool, not financial advice — check your own position with HMRC or an adviser.