Tapered annual allowance fact sheet

Learn about the special annual allowance rules which apply to high earners.

Please click ‘download’ at the bottom of the page to view the full fact sheet complete with diagrams.

Definitions

What is the tapered annual allowance?

The tapered annual allowance is a variation of the annual allowance rules which was introduced in April 2016. If you want to learn more about the annual allowance rules, please read our Annual Allowance fact sheet.

For those affected by the tapered annual allowance, the annual allowance gradually reduces from the standard

£60,000 figure down to a minimum of £10,000. The tapered annual allowance applies to individuals whose threshold income is above £200,000 and whose adjusted income is above £260,000.

The previous tapered annual allowance rules were:

6 April 2016 and 05 April 2020
Individuals with adjusted income above £150,000 were restricted in the same way reducing their annual allowance by £1 for every £2 above this figure to a minimum annual allowance of £10,000.

6 April 2020 and 5 April 2023
Individuals with an adjusted income above £240,000 were again restricted reducing their annual allowance by the same £1 for every £2 above this figure to a minimum annual allowance of £4,000.

What is threshold income?

In its simplest form, threshold income is your total taxable income for the year, excluding your pension contributions. We’ve summarised the steps you’ll need to take to find this figure below.

However, we strongly recommend that you speak to an adviser about the full details of this calculation if you think you may be affected by the tapered annual allowance.

What is adjusted income?

Adjusted income is your total taxable income including your pension contributions. A summary of the steps involved is available in the fact sheet which you can download below, but once again, we strongly recommend you speak to an adviser for the full details.

Rules

How does the taper work?

If you are affected by the tapered annual allowance, you will lose £1 of annual allowance for every £2 of adjusted income above £260,000. Your annual allowance will not drop below £10,000 though, so if your adjusted income is more than £360,000 there is no further reduction.

Is there any way to get a higher annual allowance if I’m affected by the tapered annual allowance?

You may still be able to use carry forward if you are affected by the tapered annual allowance – please read our Carry Forward fact sheet for further details.

Take care, however, if you are considering taking any action which would reduce your threshold or adjusted income (or both) in order to limit the effect of the tapering rules. The legislation includes anti-avoidance measures to prevent people from manipulating their income in order to avoid or limit their annual allowance reduction.