Tapered annual allowance: a worked example for £280k earners.
The annual allowance taper is the most complex pension tax rule in the UK system. This guide walks through the calculation step by step for an earner on £280,000.
- ▸The standard annual allowance for pension contributions is £60,000 (2025/26). For high earners, it tapers down by £1 for every £2 of adjusted income above £260,000, to a floor of £10,000.
- ▸The taper only applies if both threshold income exceeds £200,000 AND adjusted income exceeds £260,000.
- ▸For someone earning £280,000 with no pension contributions, adjusted income is £280,000. The taper reduces the annual allowance by (£280,000 - £260,000) / 2 = £10,000, leaving a £50,000 allowance.
- ▸Salary sacrifice can reduce adjusted income below the £260,000 trigger, potentially preserving the full £60,000 allowance.
Calculating adjusted income and threshold income
The taper depends on two separate income tests, both of which must be exceeded for the taper to apply:
Threshold income = gross income minus personal pension contributions (but not salary sacrifice). The threshold is £200,000. If threshold income is at or below this level, the taper does not apply regardless of adjusted income.
Adjusted income = threshold income plus employer pension contributions (including salary sacrifice). The threshold is £260,000. If adjusted income exceeds this, the taper begins.
These two tests exist to prevent gaming. Without the threshold income test, an employee could make a large personal contribution to push adjusted income above £260,000 and artificially trigger the taper to claim carry forward — a scenario HMRC wanted to block.
In practice, most people caught by the taper have total remuneration (salary plus employer pension contributions plus bonuses) above £260,000.
Applying the taper formula
The formula is straightforward:
Tapered annual allowance = £60,000 - ((adjusted income - £260,000) / 2)
The minimum floor is £10,000. This floor is reached at adjusted income of £360,000.
For each £2 of adjusted income above £260,000, £1 of annual allowance is lost. The taper therefore runs across a £100,000 band of adjusted income (£260,000 to £360,000).
The annual allowance checker calculates this automatically, including the interaction with carry forward from previous years.
What's left to contribute
Worked example — £280,000 earner:
Dr Khan earns a salary of £260,000 and receives employer pension contributions of £20,000.
- Threshold income: £260,000 (salary only, no personal contributions) — exceeds £200,000 threshold
- Adjusted income: £260,000 + £20,000 = £280,000 — exceeds £260,000 threshold
- Taper reduction: (£280,000 - £260,000) / 2 = £10,000
- Tapered annual allowance: £60,000 - £10,000 = £50,000
Dr Khan's employer is already contributing £20,000. That leaves £30,000 of annual allowance for personal contributions. On top of that, any unused allowance from the previous three tax years may be available through carry forward.
Worked example — £340,000 earner:
A partner at a law firm earns £310,000 in salary and profit share, with £30,000 of employer pension contributions.
- Threshold income: £310,000 — exceeds £200,000
- Adjusted income: £310,000 + £30,000 = £340,000 — exceeds £260,000
- Taper reduction: (£340,000 - £260,000) / 2 = £40,000
- Tapered annual allowance: £60,000 - £40,000 = £20,000
The employer is already contributing £30,000 — which exceeds the £20,000 tapered allowance by £10,000. This £10,000 excess triggers an annual allowance charge unless carry forward covers it.
Salary sacrifice lowering adjusted income below the threshold
This is where the planning gets interesting. Salary sacrifice reduces both threshold income and adjusted income — but the amount sacrificed reappears as employer contributions, which are added back to adjusted income.
The net effect: salary sacrifice does not change adjusted income (the salary reduction and pension increase cancel out). But it does reduce threshold income.
If threshold income can be brought to £200,000 or below through salary sacrifice, the taper does not apply at all — even if adjusted income remains above £260,000.
Example: An employee earns £220,000 in salary with £50,000 employer pension contributions. Adjusted income is £270,000 (taper applies). But if the employee sacrifices £25,000 of salary:
- Threshold income: £220,000 - £25,000 = £195,000 — below £200,000
- The taper does not apply, regardless of adjusted income
- Full £60,000 annual allowance is available
This route only works when threshold income is close enough to £200,000 that a reasonable sacrifice brings it below. For earners well above this level, it is not practical.
- ▸The tapered annual allowance reduces the £60,000 standard allowance by £1 for every £2 of adjusted income above £260,000, to a minimum of £10,000 at £360,000. [HMRC]
- ▸Both the threshold income test (£200,000) and the adjusted income test (£260,000) must be exceeded for the taper to apply. [HMRC]
- ▸Carry forward allows unused annual allowance from the previous three tax years to be used, provided the individual was a member of a registered pension scheme in those years. [HMRC]
This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.