Tapered Annual Allowance: 2026/27
UK Tapered Annual Allowance (2026/27)
Practical guide to UK Tapered Annual Allowance for 2026/27: £200,000 threshold income gateway, £260,000 adjusted income taper trigger, taper £1 AA reduction per £2 over £260,000, minimum £10,000 AA (above £360,000+ adjusted income), threshold income vs adjusted income, mitigation via salary sacrifice + Gift Aid + EIS + carry-forward 3 years.
Tapered AA by income level
| Adjusted income (AI) | Threshold income (TI) | Tapered AA | Note |
|---|---|---|---|
| £260,000 or below | £200,000+ (gateway crossed) | £60,000 | AI at or below £260k = no taper. Full AA available. |
| £280,000 | £200,000+ | £50,000 | Taper: £1 AA per £2 of AI above £260k. £20k excess = £10k AA reduction. |
| £300,000 | £200,000+ | £40,000 | £40k AI excess above £260k = £20k AA reduction. |
| £320,000 | £200,000+ | £30,000 | £60k AI excess = £30k AA reduction. |
| £340,000 | £200,000+ | £20,000 | £80k AI excess = £40k AA reduction. |
| £360,000+ | £200,000+ | £10,000 | Minimum AA floor £10k (taper bottoms out). |
Mitigation strategies (in priority order)
- Salary sacrifice below the threshold income of £200k where possible. Most effective mitigation if you\'re in the £200k-£260k zone.
- Gift Aid donations - reduces both threshold + adjusted income. Charitable + tax-efficient.
- Carry-forward unused AA from previous 3 tax years - prior years\' full £60k available even when currently tapered.
- EIS / VCT income tax relief reduces threshold income.
- Defer bonus to following tax year if temporary income spike + you have flexibility on timing.
- Use the Lifetime Allowance abolition - no longer concerned about total pension wealth; focus only on annual limits.
- Scheme Pays election for AA charge if you exceed the limit - reduces pension benefit but solves immediate cash flow.
- Get regulated advice for tax planning at £200k+. Cost £500-£2k typically; saves multiples in poorly-managed taper exposure.
Frequently asked questions
What is the Tapered Annual Allowance?
Reduction in the standard Annual Allowance (£60,000 in 2026/27) for high earners. Introduced 2016. Designed to prevent the highest earners from receiving disproportionate tax relief on pension contributions. Taper triggers when BOTH: (a) Threshold income exceeds £200,000 (gateway), AND (b) Adjusted income exceeds £260,000. Once triggered, AA reduces by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000 (reached at adjusted income £360,000+).
What's the difference between threshold income + adjusted income?
Threshold income: your total taxable income MINUS any personal pension contributions you make + minus most reliefs. If threshold income is below £200,000, NO taper applies regardless of adjusted income. Used as the gateway test. Adjusted income: your total taxable income PLUS employer pension contributions + your own pension contributions. Higher than threshold income. Used to calculate the actual taper amount. Effect: salary sacrifice into pension reduces threshold income (potentially avoiding the taper) but increases adjusted income (potentially worsening taper if you're already over the threshold).
How is the taper calculated in practice?
Step 1: Calculate threshold income. If under £200k, STOP - no taper. Step 2: Calculate adjusted income. If under £260k, STOP - no taper. Step 3: Calculate excess: adjusted income minus £260k. Step 4: Halve the excess - this is your AA reduction. Step 5: Standard AA £60k minus reduction = your tapered AA (minimum £10k). Worked example: £40k salary + £250k bonus + £40k employer pension = £290k adjusted income. Excess £30k ÷ 2 = £15k reduction. Tapered AA = £45k.
What counts as "income" for the calculation?
For both threshold + adjusted income, include: (a) Salary + bonuses + benefits in kind, (b) Rental income, (c) Interest + dividends, (d) Self-employment profits, (e) Trust income, (f) Foreign income for UK residents. EXCLUDE: ISA returns (tax-free), pension lump sum from previous years (separate treatment), charitable Gift Aid donations gross-up (reduces both threshold + adjusted). Calculations get complex for those near the threshold - many high earners benefit from regulated tax adviser for accurate projection + planning.
How do I avoid or minimise the taper?
(a) Salary sacrifice into pension - reduces threshold income, may push below £200k, eliminating taper. Increases adjusted income but if threshold gateway fails, no taper. (b) Gift Aid donations - reduces both threshold + adjusted income via gross-up. Charitable AND tax efficient. (c) Defer bonus to following tax year - one-time strategy if your income spike is temporary. (d) Trading allowance / property allowance utilization - £1k each. Minor but additive. (e) EIS / VCT / SEIS investments - income tax relief reduces threshold income. (f) Carry-forward unused AA from previous 3 years - if tapered AA in current year is restrictive, carry-forward previous years' full £60k allowances. Combined with current year, can stack to £200k+.
What's carry-forward + how does it interact?
You can carry forward UNUSED Annual Allowance from the previous 3 tax years. So 2023/24 + 2024/25 + 2025/26 + 2026/27 = 4 years' worth. Stacking: if you didn't use the full AA in previous years (e.g. £30k contributed of the £60k allowed), the unused £30k carries forward. Requirements: (a) you must have been a member of a registered UK pension scheme in each year you're carrying from, (b) you use current year's tapered AA first, then carry-forward from oldest year first. Carry-forward is NOT itself tapered - the prior year's full £60k is available even if you're currently in taper. Major mitigation tool for high earners with variable income.
What happens if I exceed my tapered AA?
Annual Allowance charge applies on the excess - at YOUR MARGINAL TAX RATE (effectively the tax relief you received on those contributions). So a 45% additional-rate taxpayer who exceeds AA by £10k pays £4,500 charge. Reported via Self Assessment. Optional: scheme can pay the charge from your pension under "Scheme Pays" (charge above £2,000) - reduces pension benefit but solves immediate cash flow. Particularly important: those near State Pension age may face automatic Scheme Pays if they exceed AA, eroding their pension pot at exactly the wrong time.
Did the LTA abolition affect the Tapered AA?
The Lifetime Allowance was abolished April 2024 + replaced with Lump Sum Allowance (£268,275) + LSDBA (£1,073,100). Tapered AA continues unchanged. Lifetime Allowance removal benefits ALL high earners (they can now save more total over their life without LTA charge), but the Tapered AA still limits annual contributions. Some interaction: previously, high earners faced "double penalty" of taper + LTA. Post-April-2024, the LTA penalty is gone but tapered AA remains - so the tax planning is simpler but the annual ceiling persists.
Related guides
- Maximum Pension Contribution Calculator - check your AA.
- UK Director Pension Strategies 2026/27 - high-earner planning.
- UK Salary Sacrifice Pension 2026/27 - threshold income reduction.
- UK 60% Marginal Rate Escape 2026/27 - parallel high-earner trap.