The Tapered Annual Allowance 2026/27: A Worked Example for High Earners
How the tapered pension Annual Allowance reduces high earners' tax-relieved pension contributions from £60,000 down to a floor of £10,000 once adjusted income exceeds £260,000 in 2026/27.
Why the standard £60,000 allowance doesn't apply to everyone
The standard pension Annual Allowance for 2026/27 is £60,000 — but high earners can have this reduced under the tapered Annual Allowance, a mechanism specifically aimed at limiting how much tax relief the highest earners can extract through large pension contributions.
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Open Pension calculatorThe two-part income test
The taper only applies if both of the following are true:
- Threshold income exceeds £200,000 — broadly, your income before pension contributions, with certain adjustments
- Adjusted income exceeds £260,000 — broadly, your total taxable income plus your own and your employer's total pension contributions for the year
If threshold income is £200,000 or below, the taper simply does not apply, regardless of how high adjusted income might otherwise be — this protects people with unusually large one-off employer contributions relative to their salary from being caught unnecessarily.
How the reduction is calculated
Once both tests are met, the Annual Allowance reduces by £1 for every £2 that adjusted income exceeds £260,000, down to a floor of £10,000, reached once adjusted income reaches £360,000.
Worked example: adjusted income of £300,000
A senior executive has adjusted income of £300,000 for 2026/27 (having already confirmed threshold income also exceeds £200,000).
- Excess above £260,000: £300,000 − £260,000 = £40,000
- Taper reduction: £40,000 ÷ 2 = £20,000
- Tapered Annual Allowance: £60,000 − £20,000 = £40,000
This executive can still contribute up to £40,000 a year with tax relief — a meaningful reduction from the standard £60,000, but well above the £10,000 floor.
Worked example: adjusted income of £380,000
A different high earner has adjusted income of £380,000.
- Excess above £260,000: £380,000 − £260,000 = £120,000
- Taper reduction (uncapped): £120,000 ÷ 2 = £60,000
- Since this exceeds the maximum possible reduction (£60,000 − £10,000 = £50,000), the allowance is capped at the floor of £10,000
Anyone with adjusted income of £360,000 or more is automatically down to the £10,000 floor, regardless of exactly how much higher their income climbs beyond that point.
Carry forward can sometimes help
Unused Annual Allowance from the previous three tax years can potentially be carried forward and added to the current year's allowance — but for years in which the taper applied, the amount available to carry forward from that year is based on the tapered figure for that year, not the standard £60,000, which can make the calculation considerably more complex for someone who has been a high earner for several years running.
isa-types-explainedBottom line
High earners with adjusted income above £260,000 need to actively check their tapered Annual Allowance before making large pension contributions, since exceeding it triggers a tax charge that claws back the relief on the excess. For anyone with adjusted income of £360,000 or more, the allowance is fixed at the £10,000 floor regardless of how much further income rises.
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Frequently asked questions
What is the tapered Annual Allowance?
The tapered Annual Allowance reduces the standard £60,000 tax-relieved pension contribution limit for high earners. It reduces by £1 for every £2 of 'adjusted income' above £260,000 in 2026/27, down to a minimum floor of £10,000.
At what income does the taper start reducing my Annual Allowance?
The taper begins reducing your Annual Allowance once your adjusted income exceeds £260,000, provided your 'threshold income' also exceeds £200,000 — if threshold income is £200,000 or below, the taper does not apply regardless of adjusted income.
What is 'adjusted income' versus 'threshold income'?
Threshold income is broadly your net income before pension contributions (with some adjustments), used as a first filter. Adjusted income is broadly your total taxable income plus your own and your employer's pension contributions, and is the figure actually used to calculate how much the taper reduces your allowance.
What is the minimum Annual Allowance under the taper?
The tapered Annual Allowance cannot fall below £10,000, no matter how high adjusted income rises above £260,000 — this floor is reached once adjusted income reaches £360,000.
Can carry forward help someone affected by the taper?
Yes, in some cases — unused Annual Allowance from the previous three tax years can potentially be carried forward and used, though the amount available to carry forward from a year in which the taper applied is based on that year's tapered allowance, not the standard £60,000.
What happens if I exceed my tapered Annual Allowance?
Exceeding your tapered Annual Allowance triggers an annual allowance tax charge, effectively clawing back the tax relief given on the excess contribution, added to your income tax bill for the year (or, in some cases, payable directly by the pension scheme under 'scheme pays' arrangements).
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