Salary Sacrifice for Childcare and Cycle to Work: What's Changing and What Isn't

With so much attention on the 2029 National Insurance cap on salary-sacrificed pension contributions, it’s easy to assume salary sacrifice generally is becoming less attractive. It isn’t — the 2029 change is specific to pensions. Other salary sacrifice benefits, including cycle to work and (for the shrinking number of people still eligible) childcare, are unaffected. Here’s where each one actually stands in 2026/27.

Why some benefits keep full tax relief and others don’t

Since 2017, most ‘optional remuneration arrangements’ — where you swap salary for a benefit — have lost their special tax treatment; you’re typically taxed on whichever is higher, the salary given up or the cash-equivalent value of the benefit. But the government carved out specific exceptions that keep full Income Tax and National Insurance relief: pension contributions, cycle to work schemes, ultra-low-emission cars, and employer-provided childcare arrangements that were already in place before 4 October 2018. These carve-outs are what makes salary sacrifice worth using for these particular benefits.

Cycle to Work: still one of the best-value salary sacrifice schemes

Cycle to Work lets you sacrifice salary in exchange for a bike and safety equipment (including e-bikes), which your employer buys and then ‘hires’ to you over an agreed period, typically 12 to 48 months. Because it’s excluded from the 2017 rules, you get full Income Tax and National Insurance relief on the sacrificed amount.

• There’s no fixed government cap on the value — the old £1,000 limit was tied to consumer credit licensing rules, and most employers now use providers with the right authorisation to offer higher amounts.
• At the end of the hire period, most schemes offer you the option to keep the bike for a small final payment.
• The saving comes from paying for the bike out of your gross (pre-tax, pre-NI) salary rather than your net pay — for a higher-rate taxpayer, that can mean a discount of 40%+ compared with buying the same bike outright.
• This scheme is completely unaffected by the pension salary sacrifice NI cap coming in 2029.

Childcare: mostly closed to new joiners, but still valuable for existing users

This is the one area where salary sacrifice for childcare has genuinely changed — but the change happened back in October 2018, not as part of the recent Budget.

• Employer-supported childcare voucher schemes closed to new applicants on 4 October 2018. If you joined before that date and you’re still with the same employer, you can usually keep using it — worth up to around £243 a month in vouchers free of tax and NI for a basic-rate taxpayer, with lower limits for higher earners.
• Everyone else uses Tax-Free Childcare instead, which isn’t a salary sacrifice scheme at all — it’s a separate government top-up where you pay into an online account and the government adds £2 for every £8 you pay in, up to £2,000 a year per child (£4,000 for a disabled child).
• You can’t use both at once. If you switch to Tax-Free Childcare, you have to give up your childcare vouchers within three months.
• Tax-Free Childcare has a hard income cliff-edge, not a taper: if either parent’s adjusted net income goes over £100,000, the whole household loses eligibility — there’s no gradual reduction like the Personal Allowance taper. This is where the two topics genuinely connect: a pension contribution or Gift Aid donation that brings your adjusted net income back under £100,000 can restore your entire Tax-Free Childcare entitlement, worth up to £2,000 per child a year.

Where salary sacrifice and the £100,000 threshold meet

If you’re a parent earning just over £100,000, increasing your pension salary sacrifice can do two things at once: restore your Personal Allowance (see our separate article on the 60% tax trap) and restore your Tax-Free Childcare eligibility, which is lost entirely — not tapered — once you cross £100,000. For a family with two children in registered childcare, that combination can be worth several thousand pounds a year, on top of the pension contribution itself. It’s also worth thinking about sequencing this alongside your ISA allowance — see our guide on using salary sacrifice and your ISA together — so you’re not locking away money you might need sooner.

What isn’t changing

To be clear about scope: the 6 April 2029 cap on National Insurance-free salary sacrifice applies only to pension contributions above £2,000 a year. It does not touch cycle to work, ultra-low-emission car schemes, or legacy childcare voucher schemes — those retain their existing tax treatment.

The bottom line

If your employer offers cycle to work, it remains one of the simplest ways to save on a bike purchase. If you’re still on legacy childcare vouchers, check the maths against Tax-Free Childcare before switching — and if you’re a parent close to the £100,000 threshold, a pension contribution can be worth far more than the tax relief alone once you factor in what it restores.