Pension tax guide
What is the tapered annual allowance?
The tapered annual allowance can reduce the amount some higher-income individuals can save into pensions before an annual allowance tax charge may arise. The calculation depends on both threshold income and adjusted income.
Who is affected?
The taper does not apply simply because you are a higher-rate taxpayer.
For 2026/27, the tapered annual allowance can apply where both of the following are true:
Threshold income
More than £200,000.
Adjusted income
More than £260,000.
If threshold income is £200,000 or less, the taper does not normally apply even if adjusted income is above £260,000, subject to the detailed anti-avoidance rules.
Threshold income
Threshold income starts broadly with taxable income.
Threshold income is broadly based on taxable income after certain deductions, with specific pension-related adjustments under HMRC rules.
Bonuses, dividends, rental income and other taxable income can affect the calculation, while some pension contributions and salary-sacrifice arrangements require specific adjustments.
Adjusted income
Adjusted income brings pension saving back into the picture.
Adjusted income is designed to reflect total income plus pension saving, including employer pension contributions and the value of defined benefit pension accrual under the statutory rules.
This is why someone with a salary below £260,000 can still have adjusted income above the threshold if significant employer pension contributions are being made.
How the taper works
The annual allowance reduces by £1 for every £2 of adjusted income above £260,000.
For every £2 of adjusted income above £260,000, the annual allowance is reduced by £1 until the minimum tapered allowance is reached.
For example, adjusted income of £300,000 is £40,000 above the threshold, producing a £20,000 reduction from the standard £60,000 annual allowance, assuming the threshold-income test is also met.
Minimum allowance
The tapered annual allowance cannot fall below £10,000.
For 2026/27, the minimum tapered annual allowance remains £10,000. This minimum is reached where adjusted income is sufficiently high for the full reduction to apply.
Unused annual allowance from the previous three tax years can sometimes be carried forward, but each earlier year's actual available allowance — including any taper in that year — must be calculated correctly.
Before making a large contribution
Higher-income pension planning needs an income calculation, not a guess.
1. Total taxable income
Include all relevant sources, not just employment salary.
2. Employer pension input
Employer contributions can materially increase adjusted income.
3. Salary sacrifice
Check the specific HMRC adjustments rather than assuming salary sacrifice automatically avoids tapering.
4. Carry forward
Calculate each of the previous three tax years separately.
5. Defined benefit accrual
Use the statutory pension-input calculation rather than cash contributions alone.
6. Tax charge
If pension input exceeds the available allowance, an annual allowance tax charge may arise and scheme-pays rules may sometimes be relevant.
Personal pension planning
Could your annual allowance be tapered?
A personal calculation can establish threshold income, adjusted income, available carry forward and the pension input that can be made without accidentally creating an annual allowance tax charge.
Book a conversationThis guide is for general information only and is not personal financial or tax advice. Tapered annual allowance calculations can be complex and pension and tax rules can change. Content checked against current HMRC/GOV.UK guidance for 2026/27 on 15 September 2026.