threshold and adjusted income

Tapered Annual Allowance


Who does tapered annual allowance affect?

Since 6 April 2020, the tapered annual allowance has only affected people who meet both of the following income requirements:

  • ‘threshold income’ is above £200,000, and
  • ‘adjusted income’ is above £240,000.

Working out your threshold and adjusted income can be complicated, so it might be helpful to get regulated financial advice.

Changes announced in the Spring Budget 2023

From 6 April 2023, the annual allowance for tax relief on pension savings in a registered pension scheme will increase from £40,000 to £60,000.

The adjusted income limit will increase from £240,000 to £260,000.

This means if a member’s adjusted income is over £260,000, their annual allowance in the tax year may be reduced. For every £2 their adjusted income goes over £260,000, and their annual allowance for the current tax year will reduce by £1.

The minimum reduced annual allowance a member can have from 2023 to 2024 onwards is £10,000. This has been increased from £4,000.

Know your limit

If you think you might be getting close to your annual allowance, that it could be reduced, or you might have exceeded it, you should consider getting advice from a regulated financial adviser. This could help you to understand:

  • How much your annual allowance is, including any unused amounts.
  • Whether you have exceeded your annual allowance.
  • If there are options to reduce any potential charge.
  • Your options for paying any tax charge that may be due.
Carry Forward

It’s still possible to carry forward unused annual allowance from 3 previous years to a year where the taper applies.

However, the amount of unused annual allowance available when carrying forward from a year where the taper has been applied will be the balance of the tapered amount.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age).  The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislations and regulation which are subject to change. You should seek advice to understand your options at retirement.

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