What is the difference between threshold income and adjusted income?

Threshold income is broadly your taxable income minus your own gross pension contributions; adjusted income is broadly your taxable income plus all pension inputs, including your employer’s. Threshold income decides whether the taper applies; adjusted income decides how much it cuts.

Does threshold income include pension contributions?

It subtracts your own gross contributions from taxable income. That’s deliberate — it stops someone being tapered just because they pay a lot into a pension. Employer contributions are not subtracted in the threshold-income test.

What is the threshold income limit for the taper?

£200,000 (2023/24 onwards). If threshold income is £200,000 or less there is no taper at all, whatever the adjusted income. Above £200,000 threshold income, the taper bites on adjusted income over £260,000.

Is a bond chargeable event gain included in these figures?

Yes — a chargeable event gain forms part of taxable income, so it feeds into both threshold and adjusted income. Top-slicing relief does not reduce it for this purpose; the full gain counts.

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Threshold income vs adjusted income: the two numbers behind the taper

They sound interchangeable; they aren’t. One decides whether the taper applies at all, the other decides how much it cuts — and pension contributions move them in opposite directions.

5 min read · Last reviewed 16 Jun 2026

The tapered annual allowance turns on two separate income figures, and the names don't help. Threshold income decides whether the taper applies at all. Adjusted income decides how big the reduction is. Crucially, pension contributions push the two in opposite directions — so they are rarely close together.

What goes into each

Both start from the member's taxable income for the year — earnings, profits, rent, savings and dividend income, and any chargeable event gain. From there they diverge:

The two measures, from the same starting income (PTM057100)

Threshold income =: taxable income − own gross pension contributions
Adjusted income =: taxable income + all pension inputs (employer + own)
Threshold-income gate: £200,000
Adjusted-income taper start: £260,000
Reduction: £1 per £2 of adjusted income over £260,000
Minimum (floor) allowance: £10,000 (at £360,000 adjusted income)

Threshold income subtracts the member's own contributions; adjusted income adds backall contributions, employer's included. The point of the threshold test is to spare someone whose income only looks high because they (or their employer) are paying a lot into a pension — they shouldn't be tapered for saving hard.

How they work together

The gate first. If threshold income is £200,000 or less, there is no taper at all, whatever the adjusted income — the member keeps the full £60,000. So a member with, say, £215,000 of taxable income who makes a £25,000 gross personal contribution has threshold income of £190,000, under the gate, and isn't tapered — even if their adjusted income is well over £260,000.

Clear the gate, and adjusted income sets the cut: the £60,000 falls by £1 for every £2 above £260,000, to a £10,000 floor. Take the figure from our taper explainer — adjusted income of £290,000:

Reduction once the gate is open — adjusted income £290,000 (2025/26)

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

The frequent mistake is to test only adjusted income and skip the £200,000 threshold gate — over-restricting a member whose income is high only because of their own contributions. The other is reaching for the pre-2023/24 figures (£240,000 start, £4,000 floor). Both are easy to check on the tapered annual allowance calculator, which shows both income figures and the reduction; for the whole position alongside carry-forward and the MPAA, use the pension annual allowance calculator. The mechanics, worked further, are in the tapered annual allowance explainer.

PTM057100 (threshold & adjusted income ; the two-test taper) · 2023/24 figures per Finance (No. 2) Act 2023

Common questions

What is the difference between threshold income and adjusted income?: Threshold income is broadly your taxable income minus your own gross pension contributions; adjusted income is broadly your taxable income plus all pension inputs, including your employer’s. Threshold income decides whether the taper applies; adjusted income decides how much it cuts.
Does threshold income include pension contributions?: It subtracts your own gross contributions from taxable income. That’s deliberate — it stops someone being tapered just because they pay a lot into a pension. Employer contributions are not subtracted in the threshold-income test.
What is the threshold income limit for the taper?: £200,000 (2023/24 onwards). If threshold income is £200,000 or less there is no taper at all, whatever the adjusted income. Above £200,000 threshold income, the taper bites on adjusted income over £260,000.
Is a bond chargeable event gain included in these figures?: Yes — a chargeable event gain forms part of taxable income, so it feeds into both threshold and adjusted income. Top-slicing relief does not reduce it for this purpose; the full gain counts.

Sources & grounding

Definitions: HMRC PTM057100 — threshold income is broadly net income less the individual’s own gross pension contributions; adjusted income is broadly net income plus all pension inputs (employer + own). Two-test structure.
Statutory thresholds (2023/24 onwards, Finance (No.2) Act 2023): threshold-income gate £200,000; adjusted-income taper start £260,000; £1-for-£2 reduction; £10,000 floor at £360,000; standard AA £60,000 — all held in app/calc-engine/configs/*.json and applied by app/calc-engine/pension/taper.ts.
Worked reduction figure (adjusted income £290,000 → £45,000 tapered AA): re-used from the published tapered-annual-allowance explainer (articles.tsx), cross-checked against the engine’s applyTaper. The threshold-gate illustration applies the PTM057100 definition; the inputs are illustrative of the formula, not a corpus-pinned tax result.

For planning and illustration purposes only. Verify all inputs against source documents. This explainer does not constitute financial or tax advice.