Tapered annual allowance

Tapered annual allowance

Since April 2023, the annual allowance has been set at £60,000 and we expect it will continue at this level for most individuals. However, If you’re a high earner, it’s possible your annual allowance could be less than £60,000, and as low as £10,000. This is called the ‘tapered annual allowance’.

For this to apply to you, broadly speaking, you’d need to have:

a ‘threshold income’ above £200,000

an ‘adjusted income’  above £260,000

Your threshold income is usually all your income minus the amount you pay into a pension. Meanwhile, your adjusted income is all your income, plus the amount your employer pays into your pension, or the amount your defined benefit pension.

Generally speaking, the standard annual allowance reduces by £1 for every £2 of adjusted income you earn over £260,000.  For example, if your yearly adjusted income was £300,000, your annual allowance would be reduced to £40,000.

The minimum level of annual allowance you’ll have is £10,000 (this is because tapering stops at an adjusted income of £360,000).