Tapered Annual Allowance: Rules, Thresholds and How It Works

The tapered annual allowance can reduce how much you’re able to save into a pension with tax relief, even if your personal contributions are relatively small. This is because it is based not just on what you pay in, but on your overall income and pension inputs.

This guide explains what the tapered annual allowance is, how the income tests work, what the tapered annual allowance 2026/27 thresholds are, how carry forward and scheme pays fit in, and when it may be worth getting help.

What is the tapered annual allowance?

The annual allowance is normally the maximum amount of pension saving you can build up in a tax year before a tax charge may apply. For 2026/27, the standard annual allowance is £60,000. For higher earners, though, that amount can be reduced by the pension tapered annual allowance rules.

The tapered annual allowance applies if both of the following apply in the same tax year:

Your threshold income is over £200,000
Your adjusted income is over £260,000.

If you meet both tests, your annual allowance is gradually reduced. For every £2 your adjusted income goes over £260,000, your allowance is reduced by £1, until it reaches a minimum of £10,000. This minimum applies for both the 2025/26 and 2026/27 tax years.

What else affects your tapered annual allowance

The pension tapered annual allowance is not just based on salary. Employer pension contributions, bonus patterns and, in some cases, the pension growth in a defined benefit scheme can all affect the calculation. That is why two people with similar pay can still end up with different results.

Threshold income vs adjusted income: key definitions

The tapered annual allowance 2026/27 rules are based on two key income calculations: threshold income and adjusted income, which determine whether your allowance is reduced.

Threshold Income

Threshold income starts with your net income for the tax year. HMRC then asks you to make certain deductions and add-backs. Threshold income is the figure used as the first gateway test for tapering. If your threshold income is £200,000 or less, the taper does not apply, even if your adjusted income is above £260,000.

Threshold income can include things such as:

Earnings from employment
Self-employment or partnership income
Most pension income
Interest, dividends and rental income.

HMRC’s method also requires you to make certain adjustments. This includes deducting pension contributions made through relief-at-source schemes and adding back any income reduced through salary sacrifice or flexible remuneration arrangements set up after 8 July 2015.

Adjusted income

Adjusted income starts with net income, but then adds back pension inputs more broadly, including employer contributions and pension savings where tax relief was given through payroll.

In defined contribution arrangements, that often means your own contributions plus employer contributions. In defined benefit arrangements, it is based on pension growth over the pension input period rather than just cash contributions.

Tapered annual allowance thresholds and limits (2026/27)

The table below summarises the key income thresholds and limits used to work out whether the tapered annual allowance applies.

Measure	What it means	2026/27 level
Threshold income	Your income before most pension contributions is added back to check if tapering applies at all	Over £200,000
Adjusted income	Your total income, including pension contributions, is used to calculate how much your allowance is reduced	Over £260,000
Standard annual allowance	The maximum you can normally contribute to pensions with tax relief each year	£60,000
Minimum tapered annual allowance	The lowest your allowance can be reduced to if tapering applies	£10,000

How the taper works and the minimum allowance

Once both tests are met, the taper is relatively simple in principle. You start with the standard annual allowance of £60,000. Then you reduce it by £1 for every £2 of adjusted income above £260,000. The reduction stops once the allowance reaches £10,000.

Tapered annual allowance examples

These tapered annual allowance examples show how it works in practice for 2026/27:

Adjusted income	Excess over £260,000	Reduction	Tapered allowance
£270,000	£10,000	£5,000	£55,000 max
£300,000	£40,000	£20,000	£40,000 max
£340,000	£80,000	£40,000	£20,000 max
£360,000+	£100,000+	£50,000 max	£10,000 max

These examples assume your threshold income is over £200,000. If it is not, tapering would not apply. That is why you need both calculations, not just one.

Defined contribution vs defined benefit

For defined contribution pensions, the numbers are usually easier to follow because pension input is mainly the amount of contributions paid in. For defined benefit schemes, the pension input amount is based on the increase in the value of accrued benefits over the pension input period, which can make the calculation less straightforward.

Carry forward and scheme pays

If your allowance is tapered, you may still be able to use any unused annual allowance from the previous three tax years. This means your total available allowance includes your reduced allowance for the current year, along with any unused allowance you can carry forward.

This means tapering does not automatically create a tax charge, particularly if earlier years were underused. If this is the case, carry forward may absorb some or all of the excess.

When a tax charge can arise

If, after using carry forward, your pension input amount still exceeds your available annual allowance, the excess is added to your taxable income and taxed at your marginal rate (the highest rate of income tax you pay).

What is scheme pays?

If an annual allowance charge arises, your pension scheme may be able to pay some or all of it on your behalf, in exchange for a reduction in your benefits. This is called scheme pays. Some schemes must do this if certain conditions are met, while others may offer it voluntarily even when they do not have to.

Key scheme pays points:

There are mandatory and voluntary forms of scheme pays
If the scheme pays, your benefits are reduced
The normal deadline is 31 July following the end of the relevant tax year

For some people, scheme pays can help cash flow. But it is still a real cost, because the payment is effectively met by reducing future pension benefits.

Planning strategies

The aim is not always to avoid the taper completely. Sometimes it is simply to understand it early enough to plan around it sensibly.

Salary sacrifice

Salary sacrifice can be helpful in pension planning, but it does not always reduce threshold income in the way people expect. Pension salary sacrifice or flexible remuneration arrangements made after 8 July 2015 are generally added back when you work out threshold income.

If you are relying on salary sacrifice to keep threshold income below £200,000, check the details carefully as the timing and structure matter.

Bonus timing

A large bonus can affect both threshold income and adjusted income in the tax year it is received. If you have flexibility around when a bonus is paid, or when pension contributions linked to it are made, that timing can make a difference to whether tapering applies or how severe it is.

Additional Voluntary Contributions (AVCs) and extra contributions

AVCs can still be a useful option, but it’s important to consider them alongside your tapered annual allowance and any available carry forward. The right approach depends on how much allowance you have left and whether employer contributions or pension growth are already using most of it.

A simple planning checklist:

When reviewing your situation, it can be helpful to:

Check your threshold income first
Calculate adjusted income properly
Review pension input amounts across all schemes
Check for carry forward from the previous 3 tax years
Consider whether bonus timing or contribution timing changes anything
Ask your scheme about scheme pays if a charge looks likely

When to seek specialist advice

The tapered annual allowance becomes more complicated when you have more than one pension, variable income, employer-funded contributions, salary sacrifice, or a defined benefit scheme. The risk is not just getting the numbers wrong. It is also missing planning opportunities or assuming your allowance is lower than it really is.

You may want to seek specialist advice if:

Your income is close to or above the taper thresholds
You are in a defined benefit or public sector scheme
Your bonus, dividends or partnership income change year to year
You are unsure how much employer contribution has been made
You think an annual allowance charge may apply
You want to compare paying the charge yourself with scheme pays

For many people, the most useful outcome is not a complicated model. It is simply clarity on how much can still be paid into a pension without creating a surprise tax charge.

Taking a proactive approach to the tapered annual allowance can help you stay in control of your pension planning and avoid unexpected tax charges.

Frequently asked questions

Do I have a tapered annual allowance this year?

You may be affected by the pension tapered annual allowance if both your threshold and adjusted income exceed the relevant limits for the tax year. If the threshold income is £200,000 or less, the taper does not apply, even if the adjusted income is higher.

What counts towards adjusted income?

Adjusted income starts with net income and then adds back pension inputs, including employer contributions and pension savings, where tax relief was given through payroll. In defined benefit schemes, it also reflects pension growth rather than simply cash paid in.

How does salary sacrifice affect threshold income?

For relevant salary sacrifice arrangements made after 8 July 2015, HMRC says the reduction in employment income is added back when working out threshold income. So, salary sacrifice may not reduce threshold income in the way you expect.

What is the minimum tapered annual allowance?

The minimum tapered annual allowance is £10,000 for 2026/27. Once your adjusted income is high enough, the taper stops there, and the allowance does not reduce any further.

Can I use carry forward if my allowance is tapered?

Yes. You can still use unused annual allowance from the previous 3 tax years, provided you are eligible to do so. Carry forward can reduce or even remove an annual allowance charge in some cases.

Can my scheme pay the tax charge for me?

Possibly. If certain conditions are met, your scheme may have to pay it under the mandatory scheme. In other cases, it may choose to do so voluntarily. If it does, your pension benefits will usually be reduced to reflect the charge paid.

This information is for guidance only and does not constitute financial advice. Pension rules, tax treatment and benefits depend on individual circumstances and may change in the future.