If you’re in the higher-rate tax bracket from your salary, the effort of owning a buy-to-let (BTL) property and dealing with tenants can feel painful when you’ll pay nearly half of the rental income in tax.

Combine that with a fairly stagnant UK property market, and it makes you wonder why you bother.

Frustrating, isn’t it?

Why not be clever about it instead, and avoid handing over 40% of your rental profits to HMRC?

Depending on your age, financial situation, and lifestyle needs, you have options to reduce income tax by contributing to a pension instead.

Here are two options, of which this article will cover the latter:

Option 1: Contribute all or some rental profits into a private pension (such as a SIPP) – this will reduce your income tax bill, and allow you to build wealth for the future.

At the time of writing, any contribution you make to your SIPP will include a 20% tax relief – i.e. If you contribute £800, the government will add another £200.

If you remain in the 40% income tax threshold you will be entitled to reclaim a further 20% through your annual return.

This is a smart option, but you may have an even smarter option available depending on your situation and whether your employer offers a salary sacrifice or salary matching scheme.

Option 2: Reduce your salary (and NI contributions) with salary sacrifice and salary matching, capitalising on any extra contributions from your employer, and shifting your rental income into the lower 20% tax bracket.

If your salary is in the region of £45k to £70k, and your rental income sits around £10k per year, this could be a very clever solution for you.

Let’s set the scene with an example:

Suppose you earn £50,270 from your job (the higher-rate threshold is currently £50,270), and your rental property earns £10,000.

Normally, that £10,000 would be taxed at 40%, leaving you with just £6,000.

Ouch.

Let’s fix that with salary sacrifice as a more beneficial option than contributing rental income direct to a SIPP.

What is salary sacrifice?

Salary sacrifice allows you to swap a portion of your salary for contributions into your employer pension. Not only does this reduce your taxable salary, it often triggers an employer bonus on your contribution. The percentage contribution will vary based on employer and your seniority, but can range from 3-5% standard, 6-10% good, or up to and beyond 20% for senior or executive level.

If you have a salary matching scheme on offer this can be even better, with your employer matching anything you contribute like for like—so if you contribute £2000, they match it with another £2000.

That’s free money, just for being strategic.

Here’s how salary sacrifice can reduce the tax you pay on rental income:

Let’s say you salary sacrifice £10,000 of your £50,270 salary (approx. 20%), effectively dropping your taxable salary to £40,270.

Add your £10,000 rental income on top, and your total income is now £50,270—just below the higher-rate threshold, which is what you want.

This means none of your income falls into the higher-rate tax band.

Think about that for a moment.

By simply redirecting your salary into a pension, you’ve significantly reduced the tax you pay on your rental income—and you’ve unlocked employer contributions on top.

This means more money in your pension, more cash in your pocket, and all completely above board.

How is this more beneficial to directing rental income into a SIPP?

Let’s consider this in a bit more depth:

Option 1 is putting your £10,000 rental income straight into a SIPP.

You still pay full Income Tax and National Insurance on your employment salary, meaning a noticeable chunk of your earnings disappear in tax before you ever see it.

Your rental income is then locked away in your pension, growing tax-free, and benefits from the flexibility of a SIPP that you fully control. You’ll also receive basic-rate pension tax relief at source, with any additional higher-rate relief reclaimed through your tax return if applicable.

Option 2 is to reduce your taxable salary through salary sacrifice.

By sacrificing a portion of your salary into your employer pension, your taxable employment income falls, and this can prevent your rental income from spilling into the higher-rate tax band.

Because salary sacrifice reduces your gross salary, you save both Income Tax and employee National Insurance on the amount sacrificed. In many schemes, your employer will also contribute extra to your pension, either through matching or by sharing part of their own National Insurance saving.

The result is typically higher take-home cash compared to paying rental profits directly into a SIPP, alongside a larger overall pension contribution—though the exact benefit depends on your employer’s pension scheme and contribution structure.

This means you may keep more of your rental income in your pocket today and receive an extra conOption 1 is putting your £10,000 rental income straight into a SIPP.

It’s simple, smart, and keeps more of your money working for you—both now and in the future.

Yes, it means sacrificing money now for money in your retirement, but it also means saving a lot of tax now, and instead letting that money grow lucratively in your pension fund.

What do you think of this strategy?

Would this work for you, or if not – why not?

I aim for these strategies to be simple and effective, so let me know if that’s the case in the comments.

Important note: Salary sacrifice arrangements must be offered by your employer and form part of a contractual agreement. Pension contributions are also subject to annual allowances, and money placed into a pension is not accessible until at least age 57 (rising to 58 in future). Professional advice may be appropriate for complex situations.