Guide

Tapered Annual Allowance 2026/27

Published by the UK Money Calculators editorial team. Last updated for the 2026/27 tax year.

High earners can find their pension annual allowance cut below the standard £60,000, down to a minimum of £10,000. That is the tapered annual allowance. Whether it applies depends on two income tests. Getting the calculation wrong can lead to an unexpected tax charge.

The two income tests

HMRC applies two income tests. Both must be exceeded for the taper to kick in.

Test 1 — Threshold income

Threshold income is broadly your net income for the year, excluding employer pension contributions. If your threshold income is £200,000 or below, the taper does not apply regardless of adjusted income. This protects people with large employer contributions pushing adjusted income above the limit, but whose own earnings are more modest.

Test 2 — Adjusted income

Adjusted income adds employer pension contributions back onto your net income. If your adjusted income is £260,000 or below, no taper applies. The taper only starts when both threshold income exceeds £200,000 and adjusted income exceeds £260,000.

How the taper works

For every £2 of adjusted income above £260,000, your annual allowance falls by £1. The minimum is £10,000. You hit that at £360,000.

In summary:

  • Adjusted income ≤ £260,000: full £60,000 annual allowance
  • Adjusted income £260,001–£360,000: taper applies — AA reduces by £1 per £2 excess
  • Adjusted income ≥ £360,000: minimum £10,000 annual allowance

Worked example

Jordan earns £280,000. Their employer contributes £30,000 to the pension. Jordan makes no employee contributions.

  • Threshold income: £280,000 (salary, excluding employer pension) — exceeds £200,000, so taper may apply.
  • Adjusted income: £280,000 + £30,000 employer contribution = £310,000 — exceeds £260,000, so taper applies.
  • Excess over £260,000: £310,000 − £260,000 = £50,000.
  • Taper reduction: £50,000 ÷ 2 = £25,000.
  • Tapered annual allowance: £60,000 − £25,000 = £35,000.

Jordan's total pension inputs must not exceed £35,000 to avoid an annual allowance charge.

Salary sacrifice and the tapered allowance

Salary sacrifice can affect adjusted income. When you sacrifice salary, your employer pays higher pension contributions in its place. Your gross salary falls. But those employer contributions are added back when calculating adjusted income. The net effect on adjusted income is often neutral: the salary reduction and the contribution increase cancel out.

But salary sacrifice does reduce threshold income. If it brings your threshold income to £200,000 or below, the taper cannot apply regardless of adjusted income. For people close to the threshold income limit, that is a real planning opportunity.

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Frequently asked questions

What is the tapered annual allowance?

The tapered annual allowance is a reduction to the standard £60,000 pension annual allowance that applies to high earners. It reduces the allowance by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000. It only applies when both threshold income exceeds £200,000 and adjusted income exceeds £260,000.

Does salary sacrifice affect the taper?

Salary sacrifice typically has a neutral effect on adjusted income, since the salary reduction is offset by higher employer contributions being added back. However, it does reduce threshold income, which can be useful — if salary sacrifice brings threshold income below £200,000, the taper cannot apply at all, even if adjusted income is above £260,000.

What is adjusted income?

Adjusted income is broadly your net income plus employer pension contributions (and some other items). For most people it is salary plus employer pension contributions. If you have other income sources (rental income, dividends, interest) these are also included. Your tax adviser or pension provider can give you a precise calculation for your circumstances.

What happens if I exceed the tapered annual allowance?

If your total pension inputs exceed your tapered annual allowance, you face an annual allowance charge — effectively a tax charge that claws back the relief on the excess contributions. The charge is calculated at your marginal income tax rate. You report this on your Self Assessment return, or your pension scheme can pay it on your behalf (known as "scheme pays").

Can I use carry forward with the tapered annual allowance?

Yes, but carry forward can only be applied against your tapered annual allowance for prior years, not to increase above it for the current year. For example, if your tapered AA in a prior year was £40,000 and you only used £20,000, you have £20,000 of carry forward from that year. You cannot carry forward to restore your allowance to the standard £60,000 in the current year.

Official sources

Disclaimer: This guide is for general information only and does not constitute financial or tax advice. Pension tax rules are complex and individual circumstances vary. Figures shown are for England, Wales and Northern Ireland unless stated. Consult a qualified financial adviser or HMRC for personalised guidance.