What threshold income triggers the tapered annual allowance?

The tapered annual allowance is triggered when your threshold income is over £200,000 and your adjusted income is over £260,000. Both tests have to be met. If your threshold income is under £200,000 a year, the taper is not triggered at all, however much you pay into a pension¹.

Where it does apply, the amount you can pay into a pension each year with tax relief falls. The standard annual allowance is £60,000, or 100% of your income if you earn less than £60,000³. For high earners caught by the taper, that limit can drop to as little as £10,000⁴.

The taper works by reducing your allowance as income rises above the adjusted income threshold. The reduction is £1 of allowance for every £2 of income over the threshold, so the more you earn above £260,000, the smaller your allowance becomes⁵.

Tapered annual allowance: threshold income over £200,000

Threshold income is the first test, and it acts as a gate. The tapered annual allowance may apply to anyone with a threshold income over £200,000². If your threshold income is less than £200,000, you will not be subjected to a tapered annual allowance². That rule holds regardless of what your adjusted income figure looks like.

The threshold has changed over time. From 2016/17 to 2019/20, the taper applied if an individual's threshold income exceeded £110,000⁸. From 2020/21 to 2022/23, the threshold income figure was £200,000, but the adjusted income threshold was £240,000⁸. From 2023/24 onwards, the taper applies if threshold income exceeds £200,000 and adjusted income exceeds £260,000⁸.

The £200,000 threshold income figure has been in place since 6 April 2023⁹. If your adjusted income is over £260,000 and your threshold income is over £200,000, in the current tax year you will have a reduced annual allowance¹.

For most people, the practical effect is that the taper is a question about very high earnings. Someone with a salary of £150,000, for example, would not meet the threshold income test and would keep the full £60,000 annual allowance. Someone earning £250,000 would need to check both figures carefully, because employer pension contributions count towards adjusted income even though they do not count towards threshold income.

Adjusted income over £260,000 is the second test

Adjusted income is the second test, and it is the one that catches employer pension contributions. The tapered annual allowance applies when an individual has adjusted income over £260,000, provided the threshold income test is met⁶. The adjusted income threshold has been £260,000 since 6 April 2023, when it rose from £240,000⁹.

The two tests work together. If your threshold income is more than £200,000 and your adjusted income is more than £260,000, your annual allowance for the year is reduced¹⁰. The taper affects those with an adjusted annual income of £260,000 or more¹¹.

The reduction follows a set formula. For every £2 of income over the threshold, the annual allowance is reduced by £1⁵. That means the allowance falls steadily as income rises, and it can reach a floor of £10,000 for the highest earners⁴.

The table below shows how the allowance falls at different income levels, using figures from one provider's published table.

The pattern is consistent: each additional £10,000 of income reduces the allowance by £5,000, until the floor is reached. Someone with income of £335,000 has an annual allowance of £22,500¹³.

The standard annual allowance: £60,000 or 100% of earnings

The standard annual allowance is £60,000 per tax year for most people¹⁴. If you earn less than £60,000, the limit is 100% of your earnings instead³. You can keep your annual allowance of 100% of your earnings, up to a maximum of £60,000¹⁵.

The annual allowance is the maximum amount of pension savings an individual can make in any one tax year, running from 6 April to 5 April¹⁶. All pension contributions, including those made via salary sacrifice, remain exempt from income tax, subject to the annual allowance¹⁷.

Normally the annual allowance is £60,000, but it can be lower if you have a tapered annual allowance or have triggered the money purchase annual allowance¹⁸. The money purchase annual allowance is a separate limit that applies once you have taken certain flexible payments from a pension.

Tax relief is available on contributions up to 100% of your annual earnings¹⁹. For a basic-rate taxpayer, for every £100 saved into a pension, the government adds £25 in tax relief²⁰. For a higher-rate taxpayer, a £60 pension contribution would boost the pot by £100, because you would get £40 in tax relief²¹.

Carry forward: using unused allowance from the previous three tax years

Carry forward lets you use unused annual allowance from earlier years. You can make use of any unused annual allowance you might have left over from the previous three tax years⁷. This is possible by carrying forward any unused allowances from the previous three tax years²².

You can still carry forward unused annual allowance if you have a tapered annual allowance². You can still carry forward any unused annual allowance if you are a high earner with a tapered annual allowance²³. The carry forward rules do not change just because your allowance has been reduced.

There is one important exception. If you have triggered the money purchase annual allowance, you cannot carry forward any unused allowances from previous years⁷. The money purchase annual allowance is triggered when you start taking flexible income from a defined contribution pension.

Carry forward works by looking back at the previous three tax years. If you did not use your full annual allowance in any of those years, the unused amount can be added to this year's allowance. The amount you can carry forward depends on what your allowance was in each of those years, which matters if your income has changed and the taper applied in some years but not others.

Carry forward uses unused allowance from the previous three tax years.

How much can someone with no earnings pay into a pension?

If you have no earnings, you can get tax relief on contributions up to £3,600 a year²⁴. Non-taxpayers can also benefit from tax relief at the basic rate of 20% on pension contributions²⁵. That means the £3,600 figure includes the tax relief the government adds.

For people with earnings, the position is different. Tax relief is available on contributions up to 100% of your annual earnings¹⁹. You get tax relief on contributions of up to 100 per cent of your earnings each year, depending on an annual allowance²⁶.

The £3,600 limit for people with no earnings is a fixed figure. It does not increase if you have savings or investment income but no earned income. If you are a UK resident for tax purposes and under the age of 75, you can get tax relief on pension contributions²².

The rules are different again if you are self-employed. The annual allowance is set at £60,000 for most people, or 100% of your earnings if you earn less than £60,000³. A self-employed person with profits of £40,000 could pay up to £40,000 into a pension with tax relief, because the 100% of earnings limit would apply rather than the full £60,000.

How do higher-rate taxpayers claim the extra pension tax relief?

Higher-rate taxpayers need to claim the extra relief themselves. If you pay Income Tax at a higher rate than 20%, you will need to claim the extra tax relief yourself²⁷. This is done through HMRC or a Self Assessment tax return.

If you are a higher-rate taxpayer, you qualify for pension tax relief at 40%, or 45% for additional-rate taxpayers²⁸. In practice, a £100 contribution effectively costs a higher-rate taxpayer £60²². The basic rate relief is added to your pension automatically, but the extra 20% or 25% has to be reclaimed.

The mechanics depend on how your pension is set up. Under relief at source, your provider claims basic rate relief from HMRC and adds it to your pot. You then claim the difference between basic rate and your marginal rate. Under net pay, your contribution is taken from your pay before tax, so you get relief at your marginal rate automatically.

Additional-rate taxpayers earning over £125,140 in England, Wales and Northern Ireland can claim an additional 25%²⁰. The rate you can claim depends on your marginal rate of income tax, which is why the amount varies.

Is pension tax relief different in Scotland?

Yes. Income tax rates in Scotland are different, which affects how much additional pension tax relief higher earners can reclaim²². The rates and bands are set by the Scottish Government, so the marginal rate a Scottish taxpayer pays can differ from the rest of the UK.

In Scotland, you can claim an extra £1.58 for every £100 paid if you pay enough tax at the Scottish Intermediate Rate of 21%²⁰. You may also be able to claim a further £26.58 if you pay enough tax at the Scottish Higher Rate of 42%²⁰. These figures reflect the different Scottish rates.

The annual allowance itself is a UK-wide limit. The annual allowance is the maximum amount of pension savings an individual can make in any one tax year, from 6 April to 5 April¹⁶. The taper thresholds of £200,000 and £260,000 apply across the UK.

The difference for Scottish taxpayers is in the relief they can claim, not in the allowance they have. A Scottish taxpayer with threshold income over £200,000 and adjusted income over £260,000 would have the same tapered annual allowance as someone elsewhere in the UK, but the rate at which they reclaim relief on contributions would depend on Scottish income tax rates.

Where the taper catches people out

The taper can reduce your annual allowance without you realising it. Employer pension contributions count towards adjusted income, so a pay rise or a bonus can push you over the threshold even if your salary alone would not. If you have already paid in more than your reduced allowance by the time you find out, you may face an annual allowance charge.

The charge is added to your income tax bill. You report it through Self Assessment if you have exceeded your allowance. The amount of the charge depends on how much you have exceeded the allowance by and your marginal rate of tax.

Carry forward can help, but it has limits. You can only carry forward unused allowance from the previous three tax years⁷. If you have used your full allowance in each of those years, there is nothing to carry forward. If you have triggered the money purchase annual allowance, you cannot carry forward at all⁷.

If you are unsure whether the taper applies, you can check your position using HMRC guidance. If your adjusted income is over £260,000 and your threshold income is over £200,000, in the current tax year you will have a reduced annual allowance¹.

Getting help

Free and impartial guidance on pensions is available from MoneyHelper²⁷. MoneyHelper provides information on personal pensions and how they work²⁷. If you have a complaint about a pension provider, the Pensions Ombudsman can look at it.

For tax questions, HMRC provides guidance on checking whether you have unused annual allowances¹. If you need to claim higher-rate relief, you can do so through your Self Assessment tax return or by contacting HMRC.

If you are close to the taper thresholds, it may be worth checking your position before the end of the tax year. The amount you can pay in depends on your income for the whole year, which may not be clear until the year is over.