Tapered annual allowance explained
If you are a high earner, the amount you can contribute into a pension and receive tax benefits may be reduced.
What is the tapered annual allowance?
The tapered annual allowance is a reduction in the amount you can contribute each year to your pension and still receive tax relief.
The tapered annual allowance may apply to anyone with a threshold income over £200,000, or an adjusted income over £260,000, for the tax year.
How it works
Your annual allowance will reduce by £1 for every £2 that your adjusted income exceeds £260,000. The maximum reduction is by £50,000. This reduces your annual allowance to £10,000 if you earn £360,000 or more.
The table below details how the annual allowance is tapered based on the standard annual allowance of £60,000 for the 2023-24 tax year.
|Annual Adjusted Income
|Annual Contribution Allowance
|Up to £260,000
Will I be affected by the tapered annual allowance?
You will only be affected by the tapered annual allowance if you are a high earner.
It may apply to you if you have a threshold income of more than £200,000 for the tax year and an adjusted income over £260,000.
What is threshold income?
Threshold income is essentially your net income minus any pension contributions that received tax relief. For a full explanation, see the Government’s guidance on calculating threshold income.
If your threshold income is less than £200,000, you will not be subjected to a tapered annual allowance. If it is over £200,000, you will need to check your adjusted income to see if you will be affected.
What is adjusted income?
Your adjusted income is essentially your net income plus any personal and employer pension contributions. For a full explanation, see the Government’s guidance on calculating adjusted income.
If your adjusted income exceeds £260,000, and your threshold income is above £200,000, you will be subject to a tapered annual allowance.
What happens if I am already subject to the money purchase annual allowance (MPAA)?
If you are already subject to the money purchase annual allowance (MPAA), the tapered annual allowance will not affect you. Your annual allowance will already be reduced to £10,000.
Tapered annual allowance FAQs
You can still carry forward unused annual allowance if you have a tapered annual allowance.
For example: if your adjusted income is £300,000, your annual allowance is reduced to £40,000. If you contribute less than £40,000 in the tax year, the remaining amount could potentially be carried forward to another year.
The tapered annual allowance was introduced by the government in order to control the cost of pension tax relief.
If you exceed your annual allowance, you will not receive tax relief on the excess contribution and may face an annual allowance charge. This will be levied by HMRC and will be calculated based on the information you submit when completing your self-assessment tax return.