The tapered annual allowance for high earners

The two income tests

The taper only bites when both tests are failed. Threshold income is the gate: if the client’s threshold income is at or below the limit, the standard annual allowance applies and adjusted income is irrelevant. Only when threshold income is exceeded does adjusted income — which adds back employer pension contributions — determine the tapered figure.

Sequencing the calculation

• Establish total taxable income and deduct gross personal pension contributions to reach threshold income.
• If threshold income exceeds the limit, calculate adjusted income including employer contributions.
• Reduce the allowance by £1 for every £2 of adjusted income above the limit, subject to the minimum.
• Check remaining headroom against the annual allowance and any carry forward available.

The tapered figure feeds directly into the annual allowance position and any carry forward calculation — a tapered year reduces the unused allowance available from that year.