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The tapered annual allowance, explained
Two income tests, not one. The taper bites only once threshold income clears £200,000. Then the allowance falls £1 for every £2 of adjusted income over £260,000, down to a £10,000 floor.
Based on HMRC’s Pensions Tax Manual (PTM057100) and Finance (No. 2) Act 2023.
4 min read · Last reviewed
— In short
The tapered annual allowance reduces the standard £60,000 allowance for high earners, but only where two income tests are both met. Threshold income must first exceed £200,000 for the taper to apply at all. Adjusted income above £260,000 then reduces the allowance by £1 for every £2, down to a £10,000 minimum reached at £360,000.
Put the rule to work
Run the calculation
Use the Tapered Annual Allowance calculator with your figures and see the working. Free, with no sign-up required.
The annual allowance caps tax-relieved pension input at £60,000 a year for most people. For higher earners it is tapered down. The taper turns on two separate income measures, applied in order — which is where most of the errors come from.
The rule
Start with the gate. The taper applies only if threshold income exceeds £200,000. Threshold income is broadly taxable income less the client’s own gross pension contributions, so someone who looks high-earning only because of large personal contributions can stay under the gate. At or below £200,000 there is no taper, whatever the adjusted income.
Clear the gate and the size of the reduction is set by adjusted income — broadly taxable income plus employer and own pension inputs. The £60,000 allowance falls by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000 (reached once adjusted income hits £360,000). Those are the figures in force from 2023/24; before that it was a £240,000 start and a £4,000 floor.
Worked example
2025/26. Take a client with threshold income comfortably over £200,000 and adjusted income of £290,000. The gate’s open, so we taper on the adjusted income:
- Adjusted income
- £290,000
- Excess over £260,000
- £30,000
- Reduction (£1 per £2)
- £15,000
- Standard allowance
- £60,000
- Tapered annual allowance
- £45,000
Two income tests, one year.
Net income LESS the gross of the member's relief-at-source contributions (net-pay and salary-sacrifice ones are already out of net income — don't deduct twice), PLUS any pay given up under a salary sacrifice made on or after 9 July 2015. At or below the gate → no taper, whatever the adjusted income.
Net income PLUS all pension input including employer contributions.
The thresholds and the floor have both moved. 2020/21 lifted both income tests by £90k; 2023/24 raised the adjusted-income line again (£240k → £260k), the standard allowance to £60k, and the floor from £4k back to £10k. The threshold-income gate has stayed at £200k since 2020/21.
Unsure how to build the two income figures from salary, bonus and employer contributions? Open the full pension workbench (free account) to derive them field by field.
Run your own client's figures through the tapered annual allowance calculator above, or see more scenarios — including where carry forward stacks on top of a tapered figure — worked in full in tapered annual allowance: worked examples.
Threshold income vs adjusted income
The two measures are easy to conflate but do different jobs: threshold income is the gate (does the taper apply at all?) and adjusted income is the dial (how much does it reduce the allowance by?). A client can have a high adjusted income and still avoid the taper entirely if their threshold income sits at or below £200,000 — typically because large personal pension contributions bring it down. The definitions, what counts in each figure, and where practitioners most often mix them up are set out in threshold income vs adjusted income.
The common error
The frequent one is to taper on adjusted income alone and forget the £200,000 threshold gate — over-restricting someone whose income is only high because of their own contributions. The other is reaching for last decade’s numbers: the £240,000 start and £4,000 floor were replaced from 2023/24 by £260,000 and £10,000. Both move the allowance — and any annual allowance charge — by thousands.
HMRC PTM057100 (tapered annual allowance) · threshold and adjusted income definitions · 2023/24 figures per Finance (No. 2) Act 2023 ss.20–22.
Sources & grounding
Rule basis: HMRC PTM057100 (tapered annual allowance) — the two-income-test structure (threshold income + adjusted income).
Primary sources:PTM057100
Figures (2023/24 onwards, Finance (No. 2) Act 2023 ss.20–22): threshold income £200,000; adjusted income taper start £260,000; £1-per-£2 reduction; £10,000 minimum allowance (reached at £360,000 adjusted income); standard AA £60,000. Held in app/calc-engine/configs/*.json, applied by app/calc-engine/pension/taper.ts.
Worked figures derived from those legislated values and cross-checked against the engine’s applyTaper.
For planning and illustration purposes only. Verify all inputs against source documents. This explainer does not constitute financial or tax advice.
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Put this to work on a real case.
Open the Tapered Annual Allowance calculator with the worked example above already filled in. Tapered Annual Allowance calculator
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