The tapered annual allowance, explained

The annual allowance is £60,000 a year for most people: pension input above it, after any carry forward, attracts an annual allowance charge. 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. It starts from net income, deducts gross relief-at-source contributions and adds back relevant salary-sacrifice or flexible-remuneration pay. Net-pay contributions have already reduced net income and are not deducted twice. 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: net income with specified contribution-relief addbacks, plus pension input less member contributions. Relief-at-source contributions are not added again; both income tests also deduct relevant taxable lump-sum death benefits. 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 (the figures are identical for 2026/27). Take a client with threshold income comfortably over £200,000 and adjusted income of £300,000. The gate’s open, so we taper on the adjusted income:

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 adjusted income is high mainly because of employer pension input while their threshold income is at or below £200,000. The other is reaching for the 2020/21–2022/23 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.