By Eternity Accountants Editorial Team · Reviewed by Shamayun Chowdhury, Senior Accountant · Published: 6 November 2026 · Last reviewed: November 2026 · Applies to the 2026/27 tax year
Annual allowance tapering reduces the £60,000 pension annual allowance for very high earners. For 2026/27, it only applies when threshold income is above £200,000 and adjusted income is above £260,000. You then lose £1 of allowance for every £2 of adjusted income over £260,000, with a minimum allowance of £10,000.
For most savers, the pension limit is a number they never get close to. High earners are different. Once annual allowance tapering kicks in, the amount you can put away with tax relief can drop from £60,000 to just £10,000, and anything above that limit is taxed.
The rule tends to catch company directors, consultants, hospital doctors and senior staff with generous employer contributions. Below, we walk through the two income tests, run the numbers on real-looking examples, and explain carry forward, Scheme Pays and the planning that still works.
- The standard annual allowance for 2026/27 is £60,000, the same figure that has applied since 2023/24.
- Annual allowance tapering only starts if you fail both tests: threshold income over £200,000 and adjusted income over £260,000.
- Employer pension contributions count in adjusted income but are left out of threshold income.
- The tapered annual allowance hits its £10,000 floor once adjusted income reaches £360,000.
- Unused allowance from the previous three tax years can often soak up an excess.
What Is Annual Allowance Tapering?
Your annual allowance is the ceiling on tax-relieved pension savings in a single tax year. It covers your own payments, your employer’s payments and, in a defined benefit scheme, the increase in the pension you have been promised. According to GOV.UK’s annual allowance guidance, the standard ceiling is £60,000.
Annual allowance tapering lowers that ceiling for people on very high incomes, and the reduced figure is known as the tapered annual allowance. You may also hear it called the pension taper. It first applied from April 2016, and the income limits were most recently raised in April 2023.
Who does the pension taper affect?
The people we most often see affected are:
- Owner-directors who pair large dividends with company pension contributions.
- Senior employees receiving a big bonus or share award in one year.
- NHS consultants and other defined benefit members whose pension jumps in value.
- Landlords and investors with high rent, interest or dividends on top of their earnings.
2026/27 pension allowance figures at a glance
| Limit | 2025/26 | 2026/27 |
|---|---|---|
| Annual allowance | £60,000 | £60,000 |
| Threshold income limit | £200,000 | £200,000 |
| Adjusted income limit | £260,000 | £260,000 |
| Minimum tapered annual allowance | £10,000 | £10,000 |
| Money purchase annual allowance (MPAA) | £10,000 | £10,000 |
Source: GOV.UK pension schemes rates, checked November 2026. The same limits applied in 2023/24 and 2024/25, so anyone checking the pension allowance 25/26 figures for a late return will find nothing different.
Threshold Income and Adjusted Income Explained
Annual allowance tapering relies on two different income figures. The second one only matters if the first is too high, so always start with threshold income.
What is threshold income?
Think of threshold income as the gate. You begin with net income for the tax year, meaning all taxable income less reliefs such as trading losses, before any Personal Allowance. From there:
- Subtract the gross value of personal pension contributions made under relief at source.
- Subtract any taxable lump sum death benefits you received.
- Add back pay given up through salary sacrifice or flexible remuneration set up after 8 July 2015.
Your employer’s contributions stay out of this figure. If the total is £200,000 or below, annual allowance tapering cannot apply and you keep the full £60,000, no matter how large your adjusted income is.
What is adjusted income for pension purposes?
Adjusted income meaning: your net income with every pound of pension saving made for you added back in, your employer’s included. This is the number that decides how far the allowance shrinks. To define adjusted income in steps, HMRC’s tapered annual allowance guidance tells you to:
- Begin with net income.
- Add back contributions your employer took from your pay before tax (net pay arrangements).
- Add back any relief you claimed yourself on contributions paid without relief.
- Add your employer’s contributions or, in a defined benefit scheme, the growth in your pension not covered by your own payments.
- Subtract any taxable lump sum death benefits.
Threshold income and adjusted income side by side
| Item | Threshold income | Adjusted income |
|---|---|---|
| Salary, dividends, rent, interest | Included | Included |
| Employer pension contributions | Left out | Added |
| Your net pay (payroll) contributions | Already out of pay | Added back |
| Your relief-at-source contributions (gross) | Subtracted | Not subtracted |
| Salary sacrifice set up after 8 July 2015 | Added back | Counted as employer contribution |
| 2026/27 limit | £200,000 | £260,000 |
Annual allowance tapering only applies when both limits are exceeded in the same tax year.
How defined benefit growth counts
With a defined benefit scheme, what you pay in is not your pension input amount. HMRC instead values the pension at 16 times the yearly amount, plus any separate lump sum, at both ends of the year. The opening value is first uplifted by the previous September’s CPI, and the rise between the two is your pension input amount.
That figure uses up allowance and also feeds adjusted income. A promotion or a jump in service can therefore bring on annual allowance tapering even if your own contributions hardly move.
How Annual Allowance Tapering Is Calculated in 2026/27
After both tests are failed, the arithmetic is short. These four steps work as a do-it-yourself tapered annual allowance calculator:
- Calculate threshold income. At £200,000 or less, you can stop here: the allowance stays at £60,000.
- Calculate adjusted income. At £260,000 or less, you can also stop: the allowance stays at £60,000.
- Deduct £260,000 from adjusted income, halve what is left, and round down to the nearest whole pound.
- Take that amount away from £60,000. If you end up under £10,000, your allowance is £10,000.
The method and the rounding rule both come from HMRC’s Pensions Tax Manual (PTM057100).
Annual allowance taper calculator: quick reference
| Adjusted income (threshold income over £200,000) | Tapered annual allowance 2026/27 |
|---|---|
| £260,000 or less | £60,000 (no taper) |
| £280,000 | £50,000 |
| £300,000 | £40,000 |
| £320,000 | £30,000 |
| £340,000 | £20,000 |
| £360,000 or more | £10,000 (minimum) |
With annual allowance tapering, each £20,000 of adjusted income over £260,000 takes £10,000 off the allowance.
Worked Examples
Callum owns a consultancy company. For 2026/27 he draws a £150,000 salary and £100,000 in dividends, and the company pays £40,000 into his pension. He pays nothing in personally.
His threshold income is £250,000, which fails the first test. Adding the £40,000 employer contribution gives adjusted income of £290,000.
He is £30,000 above £260,000, so his allowance drops by £15,000 to £45,000. His £40,000 of pension saving still fits, and annual allowance tapering costs him nothing this year.
Now the company pays £60,000 instead. Callum’s adjusted income climbs to £310,000, £50,000 over the limit. The reduction is £25,000, leaving a tapered annual allowance of £35,000.
His pension savings are now £25,000 too high. Without carry forward, that excess is taxed as extra income. As an additional-rate taxpayer in England, he would face a charge of about £11,250. The bigger contribution pushed up adjusted income and used more allowance at the same time, so it hurt twice.
Amara is an employee on £208,000 whose employer pays a large contribution, not through salary sacrifice. She puts £8,000 into a SIPP, which becomes £10,000 once basic-rate relief is added. Her threshold income falls to £198,000, under £200,000, so annual allowance tapering does not touch her, whatever her adjusted income.
Carry Forward, the Tax Charge and Scheme Pays
Carry forward
Allowance you did not use in the last three tax years can be brought forward, oldest year first, provided you belonged to a registered pension scheme in each of those years. This is set out in HMRC’s carry forward guidance. Where annual allowance tapering applied in an earlier year, only that year’s reduced allowance is available. Unused money purchase annual allowance can never be carried forward.
The annual allowance charge
If an excess remains after carry forward, it is taxed at your own Income Tax rates of 20%, 40% or 45%, with different rates in Scotland. It must go on your Self Assessment return, in the pension savings tax charges section, even when your scheme settles the bill.
Scheme Pays
Under HMRC’s Scheme Pays rules, a scheme must meet the charge from your benefits when three conditions are met: the charge is over £2,000, your savings in that scheme went above the annual allowance, and you ask by 31 July in the year after the following tax year. For 2026/27, the request deadline is 31 July 2028.
A scheme only has to send an automatic statement if your savings in it pass the standard £60,000. When annual allowance tapering has cut your limit to, say, £35,000, you may need to request your pension input amount from each scheme yourself.
Planning Around Annual Allowance Tapering
- Test threshold income before anything else. Personal relief-at-source contributions lower it and can switch the taper off entirely, as Amara’s example shows.
- Use carry forward before accepting a charge. Collect pension input figures for the past three years from every scheme you belong to.
- Directors: set the contribution after a profit forecast. Both dividends and company pension payments push adjusted income up.
- Look out for one-off spikes. A bonus, a big dividend or a property sale can tip you over for a single year.
HMRC can disregard arrangements whose main aim is to shift income between years to sidestep annual allowance tapering, so any timing decision needs a real commercial reason. Our personal tax planning service can look at this before the tax year closes.
In practice, the directors we work with seldom get the formula wrong. The trouble is the inputs: a March dividend, a contribution signed off at a board meeting, or a defined benefit pension that grew more than expected. Pull every figure together before the company pays anything in.
Common Mistakes
| Mistake | Consequence |
|---|---|
| Missing employer contributions from adjusted income | Allowance overstated; charge unreported, with interest |
| Forgetting salary sacrifice in threshold income | Wrongly concluding the taper does not apply |
| Carrying forward £60,000 from a year that was tapered | Excess understated on the return |
| Missing the Scheme Pays deadline | Charge has to be paid personally in cash |
Every annual allowance charge has to be reported on a Self Assessment return. Our Self Assessment tax return service covers the pension savings pages.
Frequently Asked Questions
What is the tapered annual allowance for 2026/27?
It is a lower pension annual allowance for anyone with threshold income above £200,000 and adjusted income above £260,000. The usual £60,000 drops by £1 for every £2 of adjusted income over £260,000, but it cannot go below £10,000.
At what income is the annual allowance fully tapered?
The £10,000 minimum is reached once adjusted income hits £360,000, as long as threshold income is over £200,000. By then, £100,000 of adjusted income above £260,000 has stripped out £50,000 of allowance.
What is the difference between threshold income and adjusted income?
Threshold income leaves out employer pension contributions and subtracts your gross relief-at-source payments. Adjusted income puts all pension savings back in, your employer’s included. The taper only applies if both limits are passed in the same tax year.
Can I carry forward unused allowance if I am tapered?
Yes. You can bring forward unused allowance from the previous three tax years, earliest first, if you were in a pension scheme during them. If an earlier year was tapered, only that year’s reduced allowance counts towards what you can carry.
Is there a pension taper calculator from HMRC?
HMRC provides an online pension annual allowance calculator on GOV.UK. Use it alongside the four-step method in this guide, and give it accurate pension input figures from each of your schemes.
Do employer contributions count for annual allowance tapering?
Yes, twice over. They are added to adjusted income, which sets the size of the taper, and they also use up the allowance itself. They stay out of threshold income unless they come from salary sacrifice arranged after 8 July 2015.
Final Verdict: Annual Allowance Tapering Needs Checking Every Year
Annual allowance tapering only applies when both income tests are failed, yet when it does, the bill can reach five figures. Check threshold income first, count every employer contribution in adjusted income, and use carry forward before you accept a charge.
- Estimate your threshold income and adjusted income for 2026/27.
- Ask each pension scheme for your pension input amounts covering the last four tax years.
- See our fixed-fee pricing, or call 0116 4030595 or email info@eternityaccountants.co.uk before 5 April 2027.
✓ Threshold and adjusted income worked out for you
✓ Carry forward and Self Assessment handled
Why trust this guide
- Written by the Eternity Accountants Editorial Team and reviewed by a chartered management accountant (ACMA, MAAT) with more than 15 years’ UK practice experience.
- Every figure checked against HMRC’s published 2026/27 rates and the Pensions Tax Manual.
- Covers employees, company directors and defined benefit members.
- Last reviewed: November 2026.
Sources (accessed 6 November 2026)
- GOV.UK — Tax on your private pension: annual allowance
- GOV.UK — Pension schemes rates
- GOV.UK — Work out your reduced (tapered) annual allowance
- HMRC Pensions Tax Manual — PTM057100
- GOV.UK — Check if you have unused annual allowances
- GOV.UK — Who must pay the pensions annual allowance tax charge
- GOV.UK — HS345 Pension savings tax charges
