If you're a high earner, your annual allowance may be reduced through tapering. Here's how it works.
Who is affected?
The tapered annual allowance applies if both of the following are true:
Your threshold income is over £200,000, AND
Your adjusted income is over £260,000
What is threshold and adjusted income?
Threshold income is broadly your taxable income minus any personal pension contributions.
Adjusted income is your threshold income plus any pension contributions made by or for you (including employer contributions).
How tapering works
If you're affected, your annual allowance is reduced by £1 for every £2 your adjusted income exceeds £260,000.
For example:
Adjusted income of £280,000: Allowance reduced by £10,000, so your allowance is £50,000
Adjusted income of £300,000: Allowance reduced by £20,000, so your allowance is £40,000
Adjusted income of £360,000 or more: Minimum allowance of £10,000
Minimum allowance
No matter how high your income, your annual allowance cannot be reduced below £10,000.
Should you be concerned?
If your total earnings are below £200,000, the tapered annual allowance won't affect you.
Seek advice
If you think the tapered annual allowance might apply to you, we recommend speaking to a tax adviser or financial planner who can calculate your exact position.
Still need help?
If you have questions about the tapered annual allowance, contact us at hello@joinchest.com.