Guidance

Work out your reduced (tapered) annual allowance

Work out how much annual allowance you get for your pension savings for 2016 to 2017 and each later tax year.

From:
HM Revenue & Customs
Published
27 September 2016
Last updated
6 April 2023 — See all updates

To work out if you have a reduced (tapered) annual allowance for a tax year, you’ll need to work out your:

  • net income in that tax year
  • pension savings in that tax year
  • threshold income in that tax year
  • adjusted income in that tax year

If your adjusted income is over £260,000 your annual allowance in the current tax year will be reduced.

It will not be reduced if your threshold income for the current tax year is £200,000 or less, no matter what your adjusted income is.

For every £2 your adjusted income goes over £260,000, your annual allowance for the current tax year reduces by £1. The minimum reduced annual allowance you can have in the current tax year is £10,000.

For tax years up to and including 2022 to 2023 the threshold income and adjusted income limits are different.

Whichever type of pension scheme you’re in (for example, a career average scheme), you’ll need to know your pension savings so you can work out both your:

  • threshold income
  • adjusted income

If the pension savings made in the tax year are more than your available annual allowance, you should include the excess amount on your Self Assessment return. Your available annual allowance is your reduced annual allowance plus any unused allowance from the previous 3 tax years.

This amount is added to your taxable income and you will pay Income Tax on it, at the tax rate that applies to you.

Work out your net income

  1. Add up your taxable income for the tax year.

  2. Deduct any tax reliefs that apply, like payments made to your pension scheme that had tax relief but were paid before the relief was given (because your pension scheme was not set up for automatic relief or someone else paid into your pension).

Your taxable income could include:

  • earnings from employment
  • earnings from self-employment or partnerships
  • most pensions income (State, occupational and personal pensions)
  • interest on most savings
  • income from shares (dividend income)
  • rental income
  • income received by an individual from a trust

If you do not know how to calculate your net income, a financial adviser specialising in tax and pensions should be able to help you.

Work out your pension savings

You may receive annual pension savings statements from each of your pension schemes, showing your savings for the tax year. If you have not received this information, you can ask your pension administrators for it.

For defined contribution schemes (money purchase schemes), your pension savings are usually the amount of pensions contributions made by you or someone on your behalf during the pension input period. This includes your employer.

To find out the amount of your pension savings in your defined benefit schemes (for example, career average schemes), deduct the opening value from the closing value for the pension input period.

From the 2016 to 2017 tax year, the pension input period is 6 April to 5 April (the same as the tax year).

Calculate the amount of pension savings your employer made for you

  1. Start with your total pension savings made during the pension input period.

  2. Deduct the pension contributions you made during this period (or that someone else made for you, except your employer). The result will be the amount of contributions your employer made for you. You’ll need to know the amount of contributions your employer made for you to calculate your adjusted income.

Work out the opening value of your defined benefit pension benefits

The opening value is the amount of pension benefits that have built up so far at the end of the previous pension input period.

  1. Start with your annual pension built up so far at the end of the previous pension input period.

  2. Multiply this amount by 16.

  3. Add any separate lump sum built up at the end of the previous pension input period.

  4. Increase this by the Consumer Price Index on the Office for National Statistics website for the previous September — this increased amount is your opening value.

Work out the closing value of your defined benefit pension benefits

The closing value is the amount of pension benefits that has built up so far at the end of the pension input period.

  1. Start with your annual pension built up so far at the end of the pension input period.

  2. Multiply this amount by 16.

  3. Add the value of any separate lump sum you would receive — this is your closing value.

Deduct the opening value from the closing value. If the difference is a:

  • negative amount, then your pension savings are nil for that period
  • positive amount, then this is the amount of your pension savings

Work out your threshold income

  1. Start with your net income for the tax year.

  2. Deduct the gross amount of your pension contributions to all schemes where you had ‘relief at source’. Relief at source usually applies to personal and stakeholder pension schemes, and some workplace pension schemes. They are contributions made by you or someone else on your behalf, but exclude contributions made by your employer.

  3. Deduct the amount of any lump sum death benefits you received from registered pension schemes.

  4. Add any reduction of employment income for pension provision through any relevant salary sacrifice arrangements made after 8 July 2015.

  5. Add any reduction of employment income for pension provision through any relevant flexible remuneration arrangements made after 8 July 2015.

Work out your adjusted income

  1. Start with your net income for the tax year.

  2. Add the amounts of claims made for tax relief on pension savings where they were paid before tax relief was given. For example, because your pension scheme was not set up for automatic relief or someone else paid into your pension.

  3. Add pension savings made to your pension schemes where tax relief was given (because your employer took them out of your pay before deducting Income Tax).

  4. If you are a non-domicile individual (your permanent home is outside the UK), add any relief claimed on pension savings you made to overseas pension schemes.

  5. Add the amount of pension savings your employer made for you.

  6. Deduct the amount of any lump sum death benefits you received from registered pension schemes.

Published 27 September 2016
Last updated 6 April 2023 + show all updates

  1. The rates of adjusted income and annual allowance have been updated.

  2. The threshold income has increased to £200,000 and the adjusted income has increased to £240,000. The minimum reduced annual allowance you can have has decreased to £4,000.

  3. The guidance has been updated to clarify the types of income that may be included in your taxable income. How to work out your threshold income, your pension savings and how to calculate the amount of pension savings your employer made for you has also been updated.

  4. Instructions for defined benefit pension schemes, like career average schemes, have been added.

  5. First published.

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