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Tapered annual allowance

The annual allowance for the tax year 2015/16 is unchanged from the previous year at £40,000, but the government has introduced a new tapered allowance for people who have a threshold income above £110,000 and an adjusted income above £150,000 per year.

What is threshold and adjusted income?

Threshold income is your taxable income not including contributions to a pension scheme. It includes many forms of income including property, savings, dividends, pensions (but not growth on pensions), social security and state pension income.

If you have a salary sacrifice arrangement you can’t deduct taxable income from your total income for payments made to it on or after 9 July 2015. These payments are still part of your threshold income.

Adjusted income is your taxable income not including contributions to a pension scheme (i.e. your threshold income), plus the growth on your pension savings each year.

What does the taper do?

If you have threshold income above £110,000 and adjusted income above £150,000, for every £2 your adjusted income exceeds £150,000 your annual allowance is reduced by £1 (to a minimum annual allowance of £10,000).

If your threshold income is below £110,000 the taper won’t apply to you, no matter what your adjusted earnings are.

Below are two tables showing different pay and growth scenarios. In table 1 the annual allowance remains at £40,000 because either the threshold or adjusted incomes remain below the limits.

Table 1

A: Taxable income (£) B: Contributions paid in the year (£) C: Annual growth in pension saving (£) D: Threshold income (£) = A – B E: Adjusted Income (£) = A – B + C F: Annual Allowance (£)
80,000 7,920 (9.9%) 5,000 72,080 77,080 40,000
100,000 10,500 (10.5%) 15,000 89,500 104,500 40,000
120,000 13,680 (11.4%) 25,000 106,320 131,320 40,000
120,000 13,680 (11.4%) 45,000 106,320 151,320 40,000
124,000 14,136 (11.4%) 45,000 109,864 154,864 40,000
135,000 15,390 (11.4%) 20,000 119,610 139,610 40,000
150,000 17,100 (11.4%) 15,000 132,900 147,900 40,000
160,000 20,000 (12.5%) 8,000 140,000 148,000 40,000


In this table, both of the income limits have been breached on most lines, so the tapered annual allowance is calculated using the formula 40,000 – ((E – 150,000) ÷ 2)

Table 2

A: Taxable income (£) B: Contributions paid in the year (£) C: Annual growth in pension saving (£) D: Threshold income (£) = A – B E: Adjusted Income (£) = A – B + C F: Annual Allowance (£)
125,000 14,250 (11.4%) 20,000 110,750 130,750 40,000
125,000 14,250 (11.4%) 40,000 110,750 150,750 39,625
135,000 15,390 (11.4%) 20,000 119,610 139,610 40,000
135,000 15,390 (11.4%) 40,000 119,610 159,610 35,195
150,000 17,100 (11.4%) 15,000 132,900 147,900 40,000
150,000 17,100 (11.4%) 25,000 132,900 157,900 36,050
160,000 20,000 (12.5%) 35,000 140,000 175,000 27,500
175,000 21,875 (12.5%) 10,000 153,125 163,125 33,438
183,000 22,875 (12.5%) 50,000 160,125 210,125 10,000
200,000 25,000 (12.5%) 5,000 175,000 180,000 25,000

More information about annual allowance, as well as an online checking tool, can be found on the government website tax-on-your-private-pension/annual allowance

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