Guidance

Pension schemes: work out your tapered annual allowance

Use your threshold and adjusted income to calculate how much annual allowance you get for 2016 to 2017 and later tax years.

For the 2016 to 2017 tax year (and onwards), if your ‘adjusted income’ is over £150,000 your annual allowance in the same year will be reduced.

But it won’t be reduced if your ‘threshold income’ for that year is £110,000 or less - no matter what your adjusted income is.

For every £2 your adjusted income goes over £150,000, your annual allowance for that year drops by £1. The drop is limited so that the minimum tapered annual allowance you can have is £10,000.

You’ll need to work out your threshold and adjusted income before you check your pension annual allowance to see if you have:

  • to pay tax because your pension savings for the tax year go above the annual allowance
  • any unused annual allowances to carry forward

To work out your threshold and adjusted income you first need to work out your ‘net income’.

Work out your net income

Add up your taxable income and take off any tax reliefs that apply, like, payments made gross to your pension scheme(s) (before tax relief) because your pension scheme isn’t set up for automatic relief or someone else pays into your pension trading losses, for example trade loss relief or property loss relief.

Work out your threshold income

  1. Start with your net income.
  2. Deduct the gross amount of your pension contributions (where tax relief has been given at source).
  3. Deduct the amount of any lump sum death benefits you received from registered pension schemes.
  4. Add any reduction of employment income for pension provision through salary sacrifice arrangements set up after 8 July 2015.
  5. Add any reduction of employment income for pension provision through flexible remuneration arrangements set up after 8 July 2015.

Work out your adjusted income

  1. Start with your net income.
  2. Add back in pension savings made for you by your employer.
  3. Add back in payments made to your pension scheme that got tax relief but were paid before tax relief was given (because your pension scheme wasn’t set up for automatic relief or someone else paid into your pension).
  4. Deduct the amount of any lump sum death benefits you received from registered pension schemes.

You can find more detailed information on tapered annual allowance in the Pensions Tax Manual.

Published 27 September 2016