A guide to the tapered annual allowance

Tapered annual allowance can be complex but our guide shows how it could affect you and what happens if you exc…

April 2020

Barry Foster

Vice President, Strategic & Technical Sales

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Risk Disclaimer

This content is based on our understanding of legal and tax regulations and practice at the time of writing (October 2019). It has been produced for information only. We do not provide tax, accounting, regulatory or legal advice. No action must be taken or refrained from being taken based on this content alone. Case studies are for illustrative purposes only.

Key takeaways:

  • What the difference is between threshold income and adjusted income
  • How the value of the employer’s contribution to a defined benefit (DB) scheme is calculated
  • How tapering affects a high income individual’s annual allowance

Tapered annual allowance can be complex but our guide shows how it could affect you.

The standard pension annual allowance is £40,000 p.a. but an individual’s annual allowance may be tapered (reduced) if their income exceeds certain limits. A high-income individual’s annual allowance is tapered by £1 for every £2 of income above the “adjusted income” limit.

The maximum taper is £36,000 and therefore the minimum tapered annual allowance is £4,000 for tax year 2020/21 onwards. (Note: the maximum taper was £30,000 and minimum tapered annual allowance £10,000 for tax years 2016/17 – 2019/20).

Download our guide where we expand on this theme and, via a notional case study, we calculate the value of an employer’s contribution in respect of a defined benefit scheme.

Risk Disclaimer

This content is based on our understanding of legal and tax regulations and practice at the time of writing (April 2020). It has been produced for information only. We do not provide tax, accounting, regulatory or legal advice. No action must be taken or refrained from being taken based on this content alone. Case studies are for illustrative purposes only.

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