Tapered Annual Allowance
A reduced Annual Allowance for individuals whose adjusted income exceeds £260,000, with the allowance reduced by £1 for every £2 of income above that threshold. The taper cannot reduce the Annual Allowance below a minimum of £10,000. This rule primarily affects high-earning senior employees and company directors who might otherwise accumulate very large pension pots.
How it works
The taper only applies once your adjusted income — broadly your total taxable income plus most pension contributions made on your behalf — exceeds £260,000 in a tax year. Below that level, you keep the full standard Annual Allowance of £60,000 regardless of how high your salary or bonuses are.
The reduction is applied gradually: for every £2 of adjusted income above £260,000, your Annual Allowance falls by £1, down to a minimum of £10,000. This means the taper is fully exhausted, and your allowance bottoms out, once adjusted income reaches a sufficiently high level, beyond which extra earnings no longer reduce your allowance any further.
Because the calculation uses adjusted income rather than salary alone, employer pension contributions and salary-sacrificed amounts are added back in when testing against the £260,000 line, which can catch senior employees whose cash salary looks modest but whose total pension input is large. Anyone close to this threshold typically needs input from a pension specialist or accountant, since breaching it can also affect how much Carry Forward is available from earlier years.
Example: tapering the Annual Allowance at £300,000 adjusted income
An individual with adjusted income of £300,000 is £40,000 over the £260,000 threshold. Applying the £1-for-every-£2 taper: £40,000 ÷ 2 = £20,000 reduction, so their Annual Allowance falls from £60,000 to £40,000 for the year.
A colleague with adjusted income of £370,000 is £110,000 over the threshold: £110,000 ÷ 2 = £55,000 reduction, which would take the allowance down to £5,000 — below the £10,000 floor, so it's capped at £10,000 instead, however much further their income rises.
Frequently asked questions
Does the taper apply to everyone or only very high earners?
Only people with adjusted income above £260,000 are affected — most taxpayers, including most higher-rate taxpayers, never encounter the taper because their income and pension contributions combined stay below that line.
Can I still use Carry Forward if my Annual Allowance has been tapered?
Yes, but the amount you can carry forward from an earlier tapered year is based on that year's reduced allowance, not the standard £60,000, so the benefit is smaller than for someone who wasn't tapered.
Does increasing my pension contributions make the taper worse?
Employer contributions and salary-sacrificed amounts count towards adjusted income, so increasing employer-side pension input can push you further into the taper, while personal contributions from take-home pay after tax generally affect the calculation differently.
Related Terms
Annual Allowance
The maximum amount you can contribute to registered pension schemes each tax year while still receiving tax relief, currently set at £60,000.
Pension Tax Relief
A government top-up on pension contributions that effectively returns income tax paid on the contributed amount, making pensions a highly tax-efficient saving vehicle.
Carry Forward
A pension allowance rule that lets you use any unused Annual Allowance from the previous three tax years, potentially allowing contributions well above the current year's £60,000 limit.
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