The tapered annual allowance reduces the pension annual allowance for people with high income. For 2026 to 2027 it applies only if threshold income is over £200,000 and adjusted income is over £260,000; the £60,000 allowance then falls by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000. The rules are in section 228ZA of the Finance Act 2004.

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Who is affected by the taper?

Both tests must be failed. Section 228ZA(3) makes someone a “high income individual” only if their adjusted income is more than £260,000 and their threshold income is more than £260,000 minus the standard annual allowance, which gives £200,000 while the allowance is £60,000. PTM057100 points out the practical shortcut: if threshold income is £200,000 or less, there is no need to work out adjusted income at all.

The two measures are different. Threshold income is broadly the person’s own income. Adjusted income adds back pension savings, including the employer’s. A senior employee on £180,000 with a generous employer pension can therefore have high adjusted income but still escape the taper, because threshold income is below £200,000.

How much is the allowance reduced?

The reduction is half of the adjusted income above £260,000, rounded down to the nearest £1, and the allowance cannot go below £10,000. The full taper is reached at adjusted income of £360,000, because £100,000 over the limit gives a £50,000 reduction.

Adjusted income (threshold income over £200,000) Annual allowance 2026 to 2027
£260,000 or less £60,000
£280,000 £50,000
£300,000 £40,000
£340,000 £20,000
£360,000 or more £10,000

Earlier years used different limits, which is relevant when checking carry forward. HMRC’s rates page shows threshold and adjusted income limits of £200,000 and £240,000 for 2020 to 2021 to 2022 to 2023, with a minimum allowance of £4,000, and £260,000 with a £10,000 minimum from 2023 to 2024.

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How is threshold income worked out?

Following section 228ZA(5) and PTM057100:

  1. Start with net income for the year: total taxable income from all sources after the reliefs deducted at Step 2 of section 23 of the Income Tax Act 2007, before personal allowances. It includes employment and self employed income, most pension income, savings interest, dividends, rental income and trust income.
  2. Add any employment income given up for pension contributions under salary sacrifice or flexible remuneration arrangements made on or after 9 July 2015.
  3. Deduct the gross amount of the person’s own contributions paid under relief at source.
  4. Deduct any lump sum death benefit received that is taxable as pension income.

Contributions made through a net pay arrangement already reduce employment income, so they are not deducted again. Ordinary employer contributions that are not part of a salary sacrifice are not in threshold income. The add back for salary sacrifice stops people avoiding the threshold by swapping salary for pension; see salary sacrifice schemes.

How is adjusted income worked out?

Following section 228ZA(4) and PTM057100:

  1. Start with net income.
  2. Add any relief claimed for contributions under section 193(4) or 194(1) (where relief is given by a claim rather than at source).
  3. Add the member’s contributions paid through a net pay arrangement.
  4. Add the total pension input amount for the year minus the member’s own contributions. In practice this is the employer’s contribution for a defined contribution scheme, and for a defined benefit scheme the value of the growth in benefits less what the member paid.
  5. Deduct any lump sum death benefit taxable as pension income.

Relief at source contributions are not added back, because they never reduced net income in the first place. The effect is that adjusted income measures the person’s total income including all pension saving, however it was paid. It is a different concept from the adjusted net income that drives personal allowance tapering, and the two must not be confused.

A worked illustration

Illustration only. Daniel has a salary of £230,000 and rental profits of £10,000, so his net income is £240,000. He pays £20,000 gross into a personal pension under relief at source. His employer pays £40,000 into a workplace defined contribution scheme, not under salary sacrifice.

  • Threshold income: £240,000 minus £20,000 = £220,000. This is over £200,000, so adjusted income must be checked.
  • Adjusted income: £240,000 plus (£60,000 total input minus £20,000 member contributions) = £280,000.
  • Reduction: (£280,000 minus £260,000) divided by 2 = £10,000, so his allowance is £50,000.

His total pension input is £60,000, which is £10,000 over his tapered allowance. Unless he has unused allowance from the previous three years, £10,000 is subject to the annual allowance charge.

How does the taper interact with other pension rules?

Carry forward

Unused allowance from the previous three years can be added to the tapered allowance, and GOV.UK describes the available allowance as the reduced allowance plus any unused allowance from those years. In a tapered year, unused allowance is measured against the reduced figure, not £60,000 (PTM057100).

The money purchase annual allowance

Where someone is also subject to the money purchase annual allowance, their alternative annual allowance is the tapered allowance minus £10,000. At the £10,000 minimum, PTM057100 confirms the alternative allowance is nil.

Scheme Pays

The condition that the input in a scheme must exceed the annual allowance is tested against the standard allowance, not the tapered one (PTM057100). A tapered member whose input in a scheme is above their reduced allowance but below £60,000 cannot require that scheme to pay.

Anti avoidance

Section 228ZB disregards arrangements whose main purpose, or one of whose main purposes, is to reduce the taper by lowering threshold or adjusted income in one year where that is reversed by an increase in another year.

What mistakes come up most often?

  • Looking only at salary. Dividends, rental profits, savings interest and a one off bonus all count towards both measures.
  • Treating employer contributions as outside the test. They are excluded from threshold income but included in adjusted income.
  • Forgetting defined benefit accrual, where the growth in value counts in adjusted income.
  • Deducting relief at source contributions from adjusted income as well as threshold income.
  • Applying the current limits to earlier years when calculating carry forward.
  • Waiting until after the year end. Many of the figures, such as dividends and bonuses, can be estimated during the year so that contributions can be adjusted before 5 April.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.