The Tapered Annual Allowance: How High Earners Lose Relief

Two income tests

The taper only applies if you fail both tests in a tax year:

• Threshold income over £200,000 – broadly your taxable income less your own gross pension contributions
• Adjusted income over £260,000 – broadly taxable income plus all pension savings, including employer contributions

If your threshold income is £200,000 or below, you keep the full £60,000 allowance regardless of adjusted income.

How the taper works

Where both thresholds are breached, the annual allowance reduces by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000. The floor is reached at adjusted income of £360,000 or more.

Worked example

• Salary and bonus: £280,000; employer pension contribution: £20,000
• Threshold income: £280,000 (over £200,000) ✓
• Adjusted income: £300,000 (over £260,000) ✓
• Excess over £260,000 = £40,000 → reduction = £20,000
• Tapered annual allowance = £60,000 − £20,000 = £40,000

Planning points

• Carry forward still works – but the amount available from a tapered year is the tapered figure, not £60,000
• One-off income spikes (bonuses, vesting shares, redundancy) can trigger the taper in a single year
• Getting threshold income to £200,000 or below – for example via personal pension contributions – can switch the taper off entirely, though anti-avoidance rules apply to salary-exchange arrangements set up after 8 July 2015

The definitions of threshold and adjusted income are precise and catch more than salary alone. If your income is anywhere near these levels, professional advice before contributing is strongly recommended.