By Shamayun Chowdhury, Senior Accountant, Major Accountancy · Published: 2 November 2026 · Last reviewed: November 2026 · Applies to the 2026/27 tax year (6 April 2026 to 5 April 2027)
The tapered annual allowance cuts the £60,000 yearly limit on tax-relieved pension saving for very high earners. Your limit drops by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000. It only applies if your threshold income is also above £200,000.
Most people never come close to the pension annual allowance. If your income runs well into six figures, though, the limit can shrink without warning, and any saving above your personal limit is taxed as if it were extra income. The rule behind this is the tapered annual allowance, and it catches company directors, consultants and landlords as often as it catches salaried executives.
This guide works through the rule the way an accountant would at a client meeting. First, two quick tests tell you whether the taper can touch you at all. Then a worksheet turns your figures into a personal limit, three worked examples show the numbers in real situations, and the final sections explain the tax charge, carry forward, Scheme Pays and what goes on your tax return.
- The standard annual allowance is £60,000. The taper can reduce it to as little as £10,000.
- The taper needs two conditions: threshold income over £200,000 and adjusted income over £260,000.
- Employer pension contributions count towards adjusted income, so they can trigger the taper on their own.
- Saving above your available limit creates an annual allowance charge at your income tax rate or rates, reported through Self Assessment.
- Unused allowance from the three previous tax years can often absorb an excess.
What Is the Tapered Annual Allowance?
The standard pension annual allowance for 2026/27 is £60,000. This is the amount of pension saving you can normally build up in a tax year before an annual allowance tax charge may apply. It is separate from the rules limiting how much tax relief you can claim on your own personal contributions, which are capped at your relevant UK earnings for the year.
Pension saving for this purpose includes your own contributions, anything your employer or company pays in, and, for final salary or career average schemes, the growth in your promised benefits. The government added a taper in April 2016 so that people on the highest incomes get a smaller allowance than everyone else.
The tapered annual allowance is simply that smaller limit. It is worked out fresh each tax year from your income for that same year, which is why it surprises people whose earnings jump because of a bonus, a share sale producing dividends, or a strong trading year.
Groups we see affected most often include:
- senior employees whose salary plus bonus nears £200,000 or more
- limited company directors who pay themselves through dividends and make large company pension contributions
- self-employed professionals and partners with high or uneven profits
- landlords with large rental profits on top of other income
- consultants and senior staff in defined benefit schemes such as the NHS Pension Scheme, where benefit growth counts as pension saving
The Autumn Budget on 28 October 2026 did not change the £60,000 annual allowance, the £10,000 money purchase annual allowance or the taper limits used in this guide. You can check the official position in HM Treasury’s Budget 2026 overview of tax legislation and rates, and Royal London’s Autumn Budget 2026 pensions summary lists the pension measures that were announced. Always confirm the figures before you act, because limits can change in later Budgets.
The Two Tests: Threshold Income and Adjusted Income
The taper is controlled by two different income figures. They sound alike, but they treat pension contributions very differently, and you need to clear both before your allowance is reduced.
- Test 1, threshold income over £200,000. This is broadly your income after your own personal pension contributions. If it is £200,000 or less, you keep the full £60,000, whatever your adjusted income.
- Test 2, adjusted income over £260,000. This is broadly your income plus all pension saving, including what your employer pays in. Only the amount above £260,000 reduces your allowance.
| Item | Threshold income | Adjusted income |
|---|---|---|
| Starting figure | Net income for the year | Net income for the year |
| Your own contributions to a relief-at-source scheme | Deducted (gross amount) | Not deducted |
| Your contributions taken from pay before tax (net pay) | Already excluded from income | Added back |
| Employer or company contributions | Ignored | Added |
| Salary sacrifice set up after 8 July 2015 | Added back | Already included as employer contributions |
| Lump sum death benefits received | Deducted | Deducted |
Adjusted income is not the same as adjusted net income
This trips up many readers. Adjusted net income is a different measure used for the High Income Child Benefit Charge and for the loss of the Personal Allowance between £100,000 and £125,140, the band often called the 60% trap. Pension contributions reduce adjusted net income, which is why they are popular in that band. The taper uses adjusted income, where employer pension saving is added in rather than taken away.
If your income sits around £100,000 rather than £200,000, the rules in our guides to the Personal Allowance freeze for 2026/27 and the High Income Child Benefit Charge are more likely to matter to you than the taper.
How to Work Out Your Tapered Annual Allowance: 4 Steps
HMRC sets out the method in its guidance on how to work out your reduced (tapered) annual allowance. Here is the same process in plain English, using figures for the whole tax year from 6 April to 5 April.
Step 1: Find your net income
Add up all your taxable income: salary, bonuses, taxable benefits, self-employed or partnership profits, rental profits, savings interest, dividends and pension income. Deduct relevant tax reliefs when calculating net income, including allowable trading or property losses and qualifying pension contributions paid before tax relief was given, where applicable. Do not deduct ordinary relief-at-source contributions at this stage. Their gross amount is deducted separately when you calculate threshold income.
Step 2: Work out threshold income
From net income, deduct the gross amount of your own contributions to relief-at-source schemes, such as a personal pension or SIPP, and any lump sum death benefits you received. Then add back any salary given up through salary sacrifice or flexible remuneration arranged after 8 July 2015. If the answer is £200,000 or less, stop here: your allowance is £60,000.
Step 3: Work out adjusted income
Start with net income. Add back qualifying pension contributions that were deducted when calculating net income but paid before tax relief was given, together with pension contributions deducted from your pay before Income Tax under a net pay arrangement. Then add employer pension contributions and deduct any relevant lump sum death benefits.
For a defined benefit scheme, the employer part is your pension saving in that scheme for the year minus the contributions you paid yourself. If you claimed UK tax relief on contributions to an overseas pension scheme, those are added too.
Step 4: Apply the taper
If adjusted income is over £260,000, take the excess, halve it, and subtract the result from £60,000. The allowance cannot fall below £10,000, which is reached once adjusted income hits £360,000.
| Adjusted income (threshold income over £200,000) | Reduction | Tapered annual allowance |
|---|---|---|
| £260,000 or less | £0 | £60,000 |
| £280,000 | £10,000 | £50,000 |
| £300,000 | £20,000 | £40,000 |
| £320,000 | £30,000 | £30,000 |
| £340,000 | £40,000 | £20,000 |
| £360,000 or more | £50,000 | £10,000 (minimum) |
How pension saving is measured
For defined contribution pensions, your pension saving is simply everything paid in during the tax year by you, your employer and anyone else. For defined benefit schemes, such as final salary and career average schemes, it is the increase in the value of your benefits over the year, worked out in three stages.
- Opening value. Take the annual pension you had built up at the end of the previous tax year, multiply it by 16 and add any separate lump sum. Then increase that total by the Consumer Prices Index (CPI) for the September before the tax year starts.
- Closing value. Take the annual pension built up at the end of the current tax year, multiply it by 16 and add any separate lump sum. No inflation uplift is applied.
- Pension saving. Deduct the opening value from the closing value. A negative result counts as nil.
A consultant has built up a pension of £40,000 a year, with no separate lump sum. The opening value is £40,000 × 16 = £640,000. Assuming CPI of 3%, the uplifted opening value is £659,200.
By the end of the year, a pay rise and another year of service take the pension to £44,000. The closing value is £44,000 × 16 = £704,000. Pension saving is £704,000 − £659,200 = £44,800, even though no lump of cash was paid in. The CPI figure here is illustrative, so use the actual September figure for your tax year.
You do not have to do the defined benefit sum yourself. Schemes must send a pension savings statement if your saving in that scheme goes over the standard allowance, and you can ask for one in any year.
Tapered Annual Allowance Calculation Worksheet
Many people search for a tapered annual allowance calculator, but most online tools ask for threshold and adjusted income you have not worked out yet. This worksheet follows the order of HMRC’s method. Copy the lines, fill them in for the tax year, and you will have every figure a calculator needs, or the answer itself.
| Line | What to enter | Your figure |
|---|---|---|
| A | Total taxable income for the year from all sources. Employment income is after any net pay pension contributions taken through payroll. | £ |
| B | Less allowable trading or property losses and other reliefs deducted when calculating net income (not pension contributions) | £ |
| C | Less qualifying pension contributions paid before tax relief was given, which you claim relief on through your tax return. Do not include relief-at-source contributions here. | £ |
| D | Net income (A minus B minus C) | £ |
| E | Less the gross amount of relief-at-source contributions you, or someone other than your employer, paid | £ |
| F | Less lump sum death benefits received from registered pension schemes | £ |
| G | Add salary sacrifice or flexible remuneration for pension, arranged after 8 July 2015 | £ |
| H | Threshold income (D minus E minus F plus G). £200,000 or less? Your allowance is £60,000 and you can stop. | £ |
| I | Add back the pension contributions in line C (not the losses in line B) | £ |
| J | Add pension contributions deducted from your pay before Income Tax under a net pay arrangement | £ |
| K | Add employer pension contributions (for defined benefit schemes, your pension saving minus your own contributions) | £ |
| L | Less lump sum death benefits (the same figure as line F) | £ |
| M | Adjusted income (D plus I plus J plus K minus L) | £ |
| N | Tapered allowance: if M is over £260,000, £60,000 minus half of (M minus £260,000), with a minimum of £10,000 | £ |
If line N is lower than your total pension saving for the year, you have an excess to deal with. The next sections show what that means in practice.
Worked Examples for 2026/27
The three examples below show how the tapered annual allowance works in practice. They are illustrative and use English income tax rates. They are simplified to show how the rules interact, so a real calculation should include every source of income and every pension.
Example 1: An employee with a bonus
Salary £235,000, bonus £15,000 and savings interest £5,000 give net income of £255,000. Priya pays £16,000 into her own SIPP, which is £20,000 gross with basic rate relief added. Her employer pays £30,000 into the workplace scheme.
Threshold income: £255,000 − £20,000 = £235,000. That is over £200,000, so move to test 2.
Adjusted income: £255,000 + £30,000 employer contributions = £285,000. Her £20,000 gross SIPP contribution is made under the relief-at-source method. It is deducted when calculating threshold income, but it is not added to adjusted income because it was not deducted when calculating net income.
Tapered allowance: £60,000 − (£25,000 ÷ 2) = £47,500. Total saving is £50,000, so the excess is £2,500. At 45% that would be a charge of £1,125, unless unused allowance from earlier years covers it.
Example 2: A limited company director
Daniel takes a salary of £12,570 and dividends of £180,000, and has rental profit of £15,000. Net income is £207,570. His company pays £60,000 into his pension as an employer contribution.
Threshold income: £207,570. Company contributions are ignored at this stage, and he makes no personal contributions, so the first test is met.
Adjusted income: £207,570 + £60,000 = £267,570.
Tapered allowance: £60,000 − (£7,570 ÷ 2) = £56,215, leaving an excess of £3,785.
If Daniel had taken £8,000 less in dividends, his threshold income would have been £199,570. The taper would not apply and the full £60,000 contribution would sit within his allowance. Decisions like this need care because they also affect company tax and dividend tax, covered in our guides to dividend tax rates for 2026/27 and limited company tax. Company pension contributions are usually treated as a business expense for the company, provided they meet the normal rules.
Example 3: A self-employed professional with a strong year
Sarah expected profits of around £200,000 and paid £60,000 gross into her SIPP during the year. Her accounts, finished after 5 April, show profit of £290,000.
Threshold income: £290,000 − £60,000 = £230,000, which is over £200,000.
Adjusted income: £290,000. There are no employer contributions, and her own relief-at-source payments are not added back.
Tapered allowance: £60,000 − (£30,000 ÷ 2) = £45,000. Her saving of £60,000 is £15,000 too much.
Because the self-employed often only know their true profit months after the year ends, it pays to review pension contributions before 5 April using a realistic profit forecast.
What Happens if You Go Over? The Annual Allowance Charge
Pension saving above your available allowance is not banned. Instead, you pay an annual allowance charge, which effectively claws back the tax relief given on the excess.
The excess is added to your taxable income when calculating the annual allowance charge. It may fall across more than one income tax band, so the charge is not necessarily calculated entirely at your highest marginal rate. For people affected by the taper, income is usually high enough that most or all of the excess falls in the additional rate band.
In Sarah’s case, a £15,000 excess taxed at 45% gives a charge of £6,750. Sarah’s income is far above the £125,140 additional rate threshold, so the whole excess is taxed at 45%. If part of an excess fell in the higher rate band, that part would be charged at 40% instead. Scottish taxpayers use Scottish income tax bands, so their figure can differ.
Before treating any excess as final, check two things. First, has the right figure been used for every pension, including defined benefit growth? Second, is there unused allowance from earlier years? The second point often removes the charge completely.
Carry Forward With a Tapered Allowance
Carry forward lets you use unused annual allowance from the previous three tax years, provided you were a member of a registered pension scheme in each of those years. You use the current year’s allowance first, then the earliest of the three years. HMRC explains the rules in its guidance to check if you have unused annual allowances.
The key point for high earners is that the unused amount from a tapered year is based on the tapered allowance for that year, not the standard limit.
| Tax year | Allowance that year | Pension saving | Unused, available to carry forward |
|---|---|---|---|
| 2023/24 | £60,000 (no taper) | £48,000 | £12,000 |
| 2024/25 | £40,000 (Sarah’s own tapered allowance, illustrative) | £35,000 | £5,000 |
| 2025/26 | £60,000 (no taper) | £60,000 | £0 |
| Total available for 2026/27 | £17,000 |
The £40,000 for 2024/25 is an illustration of Sarah’s personal tapered allowance in a year when her adjusted income was £300,000. It does not mean everyone had a £40,000 allowance that year: the standard allowance for 2024/25 was £60,000.
Using the table above, Sarah’s £15,000 excess in 2026/27 would be covered entirely, so no annual allowance charge would arise. Without these records, she would have paid £6,750 she did not owe. Keep your pension statements for every year, because HMRC can ask you to show how carry forward was calculated.
How to Report and Pay the Charge
An annual allowance charge is declared on your Self Assessment tax return. If you do not normally file one, you must register and file for the year. The charge goes in the pension savings tax charges section of the additional information pages (SA101 on paper, or the equivalent section online).
Any amount you pay yourself is due by 31 January after the tax year ends, so 31 January 2028 for 2026/27. Our guide to Self Assessment deadlines sets out the full timetable.
Can your pension scheme pay it? Scheme Pays
Under Scheme Pays, your pension scheme pays the charge to HMRC and reduces your pension benefits to cover it. There are two versions.
- Mandatory Scheme Pays. The scheme must agree if your charge for the year is over £2,000 and your saving in that scheme alone is over the standard £60,000 allowance. The tapered allowance is ignored for this second test, so a tapered excess on its own may not qualify.
- Mandatory Scheme Pays deadline. For mandatory Scheme Pays, the normal notice deadline is 31 July in the year following the end of the tax year to which the annual allowance charge relates. For 2026/27, the normal deadline is 31 July 2028. Earlier or extended deadlines can apply in certain circumstances, for example if you are about to take all your benefits from the scheme.
- Voluntary Scheme Pays. Where the conditions are not met, some schemes will pay on a voluntary basis, often with earlier deadlines. Ask your scheme administrator early.
Even when the scheme pays some or all of the charge, the full charge must still appear on your tax return, along with the scheme’s details. Leaving it off is a common and avoidable error.
If the money purchase annual allowance also applies
Once you flexibly access a defined contribution pension, for example by taking taxable income from drawdown, the money purchase annual allowance (MPAA) of £10,000 applies to future defined contribution saving. Carry forward cannot be used to increase the MPAA.
If you are also tapered, your allowance is split in two. Defined contribution saving is tested against the £10,000 MPAA. Any other saving, such as defined benefit growth, is tested against the alternative annual allowance, which is your tapered allowance minus £10,000.
Mark has adjusted income of £320,000, so his tapered allowance is £30,000. He has already flexibly accessed a SIPP, so the MPAA applies.
His defined contribution saving is limited to £10,000, and his alternative annual allowance for defined benefit growth is £30,000 − £10,000 = £20,000. At the £10,000 minimum tapered allowance, the alternative annual allowance would be nil.
Legitimate Ways to Manage the Taper
There is no single right answer, and what suits one person can create a bigger bill for another. The options below are the ones we most often look at with clients, as general information rather than advice:
- Review before 5 April. Estimate threshold and adjusted income before making large contributions late in the tax year.
- Use carry forward first. Confirm your unused allowance from the last three years before deciding a charge is unavoidable.
- Look at how income is drawn. Directors can sometimes adjust the timing or mix of salary and dividends, though this has wider tax effects.
- Choose how contributions are made. Personal relief-at-source contributions reduce threshold income, whereas employer contributions do not. Salary sacrifice set up after July 2015 is added back.
- Check defined benefit growth. A pay rise or extra service can push benefit growth up sharply, so request your pension savings statement.
If you need help with your figures, a personal tax accountant can check them. For a review of your wider position, our tax planning services cover pension contributions alongside income tax, dividends and property income. Where a decision involves investment choices, you should also speak to an FCA-regulated financial adviser.
Common Mistakes With the Tapered Annual Allowance
| Mistake | Why it causes problems |
|---|---|
| Ignoring employer contributions | They count in full towards adjusted income and towards your pension saving |
| Assuming salary sacrifice avoids the first test | Arrangements made after 8 July 2015 are added back to threshold income |
| Using last year’s income | The taper is based on income in the same tax year as the contributions |
| Forgetting defined benefit growth | Benefit growth counts as pension saving even though no cash is paid in |
| Using old limits | The £200,000 and £260,000 limits have applied only since 2023/24 |
| Leaving the charge off the return | The full charge must be reported even when Scheme Pays is used |
How the Taper Limits Have Changed
The taper has been reshaped twice since it started. You need the right figures when calculating carry forward from older years.
| Tax years | Threshold income | Adjusted income | Minimum allowance |
|---|---|---|---|
| 2016/17 to 2019/20 | £110,000 | £150,000 | £10,000 |
| 2020/21 to 2022/23 | £200,000 | £240,000 | £4,000 |
| 2023/24 onwards | £200,000 | £260,000 | £10,000 |
Tapered Annual Allowance FAQs
What is the tapered annual allowance for 2026/27?
It is a reduced pension annual allowance for people with threshold income over £200,000 and adjusted income over £260,000. The standard £60,000 falls by £1 for every £2 of adjusted income above £260,000, to a minimum of £10,000.
How do I calculate my threshold income?
Start with your net income for the tax year, deduct the gross value of your own relief-at-source pension contributions and any lump sum death benefits, then add back salary sacrifice arranged after 8 July 2015.
Do employer pension contributions count?
Yes, for adjusted income. They do not count towards threshold income unless they come from a salary sacrifice arrangement made after 8 July 2015.
Does salary sacrifice avoid the taper?
No, not for arrangements made after 8 July 2015. The salary you give up is added back when working out threshold income, so it cannot be used to get under £200,000.
When did the tapered annual allowance start?
It started on 6 April 2016, at the beginning of the 2016/17 tax year. The income limits were raised in 2020/21 and again in 2023/24.
Does my pension provider work out my tapered allowance?
Usually not. Providers know what was paid into their own scheme, but not your other income or pensions. Working out the taper is your responsibility, often with help from an accountant.
Can I contribute more than my tapered annual allowance?
Yes. There is no legal ban on paying in more, but saving above your available allowance, including any carry forward, triggers an annual allowance charge. Tax relief on your own contributions is also limited to 100% of your relevant UK earnings, or £3,600 gross if higher.
Does the tapered annual allowance affect employer contributions?
Yes. Employer contributions count towards your pension saving and towards adjusted income. Your employer or company can still pay them, but any annual allowance charge that results is your personal liability, not the employer’s.
Can I use carry forward if my allowance is tapered?
Yes. You can carry forward unused allowance from the previous three tax years, after using the current year’s allowance first. For any year in which you were tapered, the unused amount is based on your tapered allowance. Carry forward cannot be used against the money purchase annual allowance.
What happens if I exceed the annual allowance but have no tax to pay?
If unused allowance carried forward covers the whole excess, there is no annual allowance charge, so nothing is payable. Keep your workings and pension statements as evidence. If a charge does arise, you must report it through Self Assessment, even if you would not otherwise need to file a tax return.
Is there a tapered annual allowance calculator?
Several online tools exist, and many pension providers offer one. Each still needs your threshold and adjusted income, so complete the calculation worksheet in this guide first and use any calculator as a cross-check.
Final Word on the Tapered Annual Allowance
The tapered annual allowance only applies when both tests are met, and it is worked out each year from that year’s income. Check threshold income first, include every employer contribution in adjusted income, and look at carry forward before accepting a charge. If an excess remains, report it on your tax return and consider whether Scheme Pays is available.
Every rule and limit was checked against HMRC guidance on GOV.UK and the Pensions Tax Manual. The worked examples were recalculated step by step, and the guide was reviewed by a practising senior accountant. It is general information, not personal tax, pension or investment advice.