Tapered pension annual allowance.
Your annual allowance
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Reduction from £60,000
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Your breakdown
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Two gates, both must open
The tapered annual allowance is one of the most misunderstood corners of UK pension tax, partly because it depends on two separate income measures that have to be tested together. The standard pension annual allowance is £60,000. The taper only bites if both of the following are true: your threshold income is above £200,000, and your adjusted income is above £260,000. Clear just one gate and you keep the full £60,000. Clear both and your allowance falls by £1 for every £2 of adjusted income above £260,000, bottoming out at a £10,000 floor once adjusted income reaches £360,000. This calculator runs that exact two-gate test on the figures you enter.
Threshold income versus adjusted income
The two terms catch people out constantly. Threshold income is broadly your total taxable income less your own personal pension contributions. Adjusted income is broadly your total taxable income plus all pension contributions, including everything your employer puts in. The £200,000 threshold-income gate exists so that someone whose only reason for a high adjusted income is a large employer contribution is not unfairly tapered. Get the two measures the wrong way round and you can badly misjudge your allowance.
An adjusted income of £300,000
Enter adjusted income of £300,000 and threshold income of £240,000, the defaults. Threshold income clears the £200,000 gate, and adjusted income is above £260,000, so the taper applies. The excess over £260,000 is £40,000, halved to a £20,000 reduction. Your annual allowance is therefore £60,000 minus £20,000, which is £40,000.
The shorter teal bar is the £20,000 the taper has stripped away. If adjusted income climbed to £360,000, the bar would shrink to just the £10,000 minimum, where it then stays however high the income goes.
Carry-forward, the usual escape route
A tapered allowance is not always a hard ceiling on what you can pay in with relief. If you have unused annual allowance from the previous three tax years, carry-forward lets you add it to the current year, provided you were a pension scheme member in those earlier years. A consultant or executive who has been tapered for a couple of years but underused their allowance can sometimes still make a large contribution by sweeping up the unused amounts. This is the single most useful planning lever for high earners caught by the taper, and it is worth checking your last three years' pension statements before assuming you are stuck at £40,000.
The mistake that triggers a charge
The classic error is to keep contributing as though you still have the full £60,000 when you have actually been tapered to £40,000 or less. Pay in above your tapered allowance, with no carry-forward to cover it, and the excess is hit by the annual allowance charge, effectively clawing back the tax relief at your marginal rate. Members of defined benefit schemes are especially exposed, because the deemed value of their pension growth can be larger than they realise. If your income is anywhere near these thresholds, work out your allowance before the tax year ends, not after.
Does a salary sacrifice pension help me avoid the taper?
It can help with the threshold-income gate but not the adjusted-income one. Salary sacrifice reduces your taxable salary, which lowers threshold income, but the sacrificed amount becomes an employer contribution that still counts toward adjusted income. So sacrifice can keep you under the £200,000 threshold gate and avoid the taper entirely, which is exactly why it is a popular tool for those hovering near the line.
Is the £10,000 floor ever lower?
Not for 2025/26. The minimum tapered allowance is £10,000, reached once adjusted income hits £360,000. It was lower at £4,000 in earlier years, but the 2023 reforms raised both the floor and the starting threshold, so anyone working from older guidance may be using out-of-date figures.