Tapered annual allowance 2026/27: threshold income, adjusted income and worked examples

For a high earner, the question “How much more can I contribute?” needs more than a pension statement. The answer brings together income, funding already received and the funding now proposed. A contribution recommendation based on last year’s allowance can become unreliable when a bonus, dividend or employer payment changes the calculation.

This guide covers the 2026/27 position for UK adviser teams. The worked cases are original illustrations of published rules, with simplified facts and no money purchase annual allowance restriction.

Tapered annual allowance: start with both income tests

The standard annual allowance is £60,000. Where both income tests are met, reduce it by £1 for every £2 of adjusted income above £260,000, subject to a £10,000 minimum. Threshold income of exactly £200,000 does not trigger tapering; adjusted income of exactly £260,000 does not trigger it either.

For whole-pound calculations, HMRC requires any fractional reduction to be rounded down to the nearest pound. Keep that rule in the calculation rather than rounding the input figures prematurely. See HMRC’s tapered annual allowance guidance.

Threshold income	Adjusted income	2026/27 allowance before carry forward
£198,000	£290,000	£60,000
£225,000	£260,000	£60,000
£225,000	£300,000	£40,000
£225,000	£360,000	£10,000

These are deliberately separate scenarios. They show why a headline adjusted-income number cannot settle the question without the threshold-income result beside it.

Calculate income on a consistent basis

For a straightforward defined contribution case, a useful working presentation starts with income before deducting personal pension contributions. Threshold income generally deducts those contributions and adds back relevant pension salary sacrifice agreed after 8 July 2015. Adjusted income generally adds employer pension funding to that starting income.

This is a working presentation, not a replacement for the statutory calculation. HMRC starts from tax-law net income and makes specific adjustments. Payroll arrangements, particular deductions, pension death benefits and overseas matters need their own treatment. Follow HMRC’s calculation steps where those apply.

Ask whether a salary figure is before or after an employee contribution under net pay. Mixing a post-contribution salary with another deduction for the same contribution understates income. Conversely, adding relief-at-source contributions to income that was never reduced by them overstates adjusted income.

The file should therefore show the starting figure, its source and every adjustment. “Income confirmed by client” is too broad to explain how the two calculations were built.

Worked example: employer funding changes the answer

Assume Leila has £245,000 of employment income and £10,000 of other taxable income. She makes a £15,000 gross personal contribution using relief at source. Her employer contributes £35,000. There is no salary sacrifice, no other adjustment and no available carry forward.

Her threshold income is £255,000 less £15,000: £240,000. Her adjusted income is £255,000 plus £35,000: £290,000.

The taper reduction is (£290,000 − £260,000) ÷ 2 = £15,000. Her allowance is therefore £45,000. Combined pension inputs are £50,000, leaving a £5,000 excess for annual allowance charge consideration.

Now suppose the employer proposes a further £10,000 contribution. Adjusted income becomes £300,000 and the allowance falls to £40,000. Total inputs become £60,000, increasing the excess to £20,000.

The second payment has two effects: another £10,000 enters the pension and the allowance falls by £5,000. The existing £5,000 excess consequently grows by £15,000. This is why the proposed employer contribution belongs inside the calculation used to assess it.

The example does not establish that employer funding is unsuitable. It identifies a tax consequence that must be weighed alongside the value of the funding and the client’s circumstances. The amount of any charge requires a separate tax calculation; an excess is not itself the tax payable.

Worked example: a personal contribution changes threshold income

Assume Arjun has £225,000 of employment income and £45,000 of employer pension funding. He has no other income, salary sacrifice or initial personal contribution.

Threshold income is £225,000 and adjusted income is £270,000. The allowance is £55,000. Existing pension inputs are £45,000.

He considers a £25,000 gross personal contribution through relief at source. Threshold income then falls to exactly £200,000, so the taper does not apply. Adjusted income remains £270,000, but the threshold-income condition is no longer met.

His allowance returns to £60,000; total inputs become £70,000. He still needs £10,000 of available carry forward to cover those inputs without an annual allowance charge. Restoring the standard allowance has not made the full contribution automatically charge-free.

At 20% relief at source, the illustrative £25,000 gross contribution comprises £20,000 paid by Arjun and £5,000 claimed by the provider. Any further relief depends on his tax position. The case assumes sufficient relevant UK earnings and eligibility for relief.

Record the original calculation and the proposed calculation together. That makes the reason for the change visible without requiring a reviewer to reconstruct it from separate emails.

Check carry forward separately from contribution tax relief

Unused annual allowance can generally be carried forward from the previous three tax years, subject to the membership requirements. Use the current year’s allowance first, then the earliest available year. A year’s unused amount depends on the allowance actually applying in that year, including any taper and any subsequent use of that balance.

For 2026/27, the relevant years are 2023/24, 2024/25 and 2025/26. Do not assume each contributes an untouched £60,000. Keep a year-by-year record of the allowance, pension inputs and amounts already used.

Carry forward also does not remove the separate earnings limit on tax relief for personal contributions. The MPAA is another separate restriction and cannot be increased by carry forward. See HMRC’s annual allowance overview.

Three technical details to resolve before implementation

Defined benefit membership. The relevant pension input is calculated from growth in benefits, rather than simply the employee’s payroll deductions. For adjusted income, the employer element is generally the pension input amount less member contributions. Obtain the scheme calculation; do not substitute the employer’s published contribution percentage.

Salary sacrifice. Obtain the agreement and its effective date. A relevant arrangement made after 8 July 2015 is added back for threshold income. Do not assume a reduction in taxable salary gives the same result as a personal contribution.

Income beyond salary. Check savings, dividends, rental profits and any bond chargeable event gain. Tax allowances or reliefs that reduce the eventual income tax bill do not necessarily reduce the income used for tapering. In particular, the top-sliced portion of a bond gain is not the figure to substitute for the full taxable gain in this assessment.

What the adviser file should contain

Keep a concise calculation record with five elements:

1. Income schedule: identify confirmed figures and estimates separately, with the expected date for final bonus or other variable-income information.
2. Pension schedule: reconcile personal, employer and other inputs across the client’s arrangements, including any defined benefit statement.
3. Two income calculations: show threshold and adjusted income, the contribution basis used and the resulting allowance.
4. Funding comparison: retain calculations before and after the proposed payment, including carry forward where needed.
5. Follow-up owner: identify who confirms the final figures and checks whether the tax return needs to reflect an excess.

An estimate should remain visibly an estimate. If a contribution relies on a forecast bonus, record what happens if the actual bonus is higher. A later reconciliation then has a clear purpose and owner.

Before recommending an additional payment, the practical next step is to reconcile these figures with the client and, where relevant, their accountant. A traceable calculation record fits Templi’s emphasis on reviewable advice work while leaving the technical decision with the adviser.

Technical position checked on 17 September 2026. For financial advisers.