What is the Tapered Annual Allowance?

Tapered Annual Allowance largely affects higher earners.

To work out if you have a Tapered Annual Allowance, you need to assess your net income in the tax year in question, your pension savings in that year, the threshold income in the tax year (taxable income for the tax year less any taxable lump sum pension death benefits accruing in the tax year plus employment income given up for pension contributions, i.e. salary sacrifice) and your adjusted income (adds in the value of all employer pension contributions) in the tax year.

As soon as your threshold income exceeds £200,000, your allowance reduces by £1 for every £2 your adjusted income rises above £260,000. The minimum this can taper to is £10,000. So, if your adjusted income for the current tax year is £290,000 - thus exceeding the minimum limit by £30,000 - your annual allowance would drop £15,000 (£30,000/2) to £45,000.