The tapered annual allowance, explained

The annual allowance caps the pension input that gets tax relief each year — £60,000 for most people. For high earners it is tapered down, and the rule that trips DIY calculations is that it depends on two separate income measures, applied in order.

The rule

First the gate: the taper applies only if threshold incomeexceeds £200,000. Threshold income is broadly taxable income less the individual's own gross pension contributions — so someone whose high income is itself driven by large personal contributions can stay under the gate and keep the full allowance. At or below £200,000 there is no taper, whatever the adjusted income.

If the gate is passed, 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, to a minimum of £10,000 (reached once adjusted income hits £360,000). These are the figures in force from 2023/24; before that the thresholds were £240,000 and a £4,000 floor.

Worked example

2025/26. A member with threshold income comfortably over £200,000 and adjusted income of £290,000. The gate is passed, so we taper on the adjusted income:

The common error

The frequent mistake is to taper on adjusted income alone and forget the £200,000 threshold gate — over-restricting someone whose income is high only because of their own contributions. The second is using last decade's numbers: the £240,000 start and £4,000 floor were replaced from 2023/24 by £260,000 and £10,000. Both change 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.