The tapered annual allowance is a reduction in the amount of tax-relievable contributions you can make to a pension if your income is above certain thresholds. It’s designed to limit the tax benefits available to high earners. The taper reduces the standard annual allowance (currently £60,000 for the 2023/24 tax year) down to as low as £10,000, depending on your income.
The taper applies if both of the following are true:
Your threshold income exceeds £200,000.
Your adjusted income exceeds £260,000.
If both conditions are met, your annual allowance will be reduced.
If you exceed your tapered allowance, you’ll face a tax charge on the excess contributions. This charge effectively removes the tax relief you would otherwise get on the overpayment.
Calculation of the Reduction
For every £2 of adjusted income above £260,000, your annual allowance is reduced by £1.
The minimum allowance you can have is £10,000.
Example of Reduction:
Adjusted Income | Reduction | Annual Allowance |
£260,000 or below | No reduction | £60,000 |
£280,000 | £10,000 reduction | £50,000 |
£320,000 | £30,000 reduction | £30,000 |
£360,000 or above | Maximum reduction | £10,000 |
Terms
Threshold Income: Your total taxable income, minus any pension contributions you make under certain arrangements (like "relief at source").
Adjusted Income: Your total taxable income plus all pension contributions (both personal and employer).
If you have any questions about calculating your income or contributions, we recommend consulting a professional financial advisor. They can provide expert guidance tailored to your specific situation.