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Tapered annual allowance: £1 off for every £2 of adjusted income over £260,000, with a £10,000 floor
A high earner's pension annual allowance falls £1 for every £2 of adjusted income over £260,000, to a floor of £10,000. Worked for five clients.
A client with a good salary, a bonus and a rental property comes to a review wanting to put a large sum into their pension. The paraplanner has to answer one question before the suitability report is drafted: how much can go in this tax year without a tax charge? For most clients the answer is the standard annual allowance. For a small group of high earners it is less, and the figure has to be worked out by hand.
What the sources say
GOV.UK's pension rates page lists, for 2026 to 2027, an annual allowance of £60,000, a threshold income limit of £200,000, an adjusted income limit of £260,000 and a minimum tapered annual allowance of £10,000. The GOV.UK page on the annual allowance says a reduced ("tapered") allowance applies only if both threshold income is over £200,000 and adjusted income is over £260,000.
The HMRC Pensions Tax Manual (PTM057100) gives the mechanism. The annual allowance is "reduced by £1 for every £2" of adjusted income above £260,000. From 2023-24 it cannot fall below £10,000. If the reduction is not a whole number of pounds, it is rounded down to the nearest £1.
The sum, in steps
- Check threshold income. If it is £200,000 or less, stop: the client has the full £60,000 and adjusted income need not be worked out.
- Take adjusted income and subtract £260,000. If the result is nil or negative, there is no reduction.
- Halve it and round down to the nearest £1. That is the reduction.
- Take the reduction from £60,000. If the answer is below £10,000, the allowance is £10,000.
Five clients worked
| Client | Threshold income | Adjusted income | Reduction | Annual allowance |
|---|---|---|---|---|
| A | £250,000 | £280,000 | (£280,000 - £260,000) / 2 = £10,000 | £50,000 |
| B | £290,000 | £300,000 | £20,000 | £40,000 |
| C | £230,000 | £275,001 | £15,001 / 2 = £7,500.50, rounded down to £7,500 | £52,500 |
| D | £340,000 | £380,000 | £60,000, but the floor applies | £10,000 |
| E | £195,000 | £330,000 | none, threshold income is not over £200,000 | £60,000 |
Our arithmetic, on illustrative figures. Client D shows where the floor starts: at adjusted income of £360,000 the reduction is £50,000 and the allowance is exactly £10,000, so every pound above that changes nothing. Client E is the one that catches people. Adjusted income of £330,000 looks like a case for the minimum, but the threshold income test fails first, so the allowance is the full £60,000. Client C shows the rounding rule in use. A real file must take both income figures from the client's own records.
What to do at the review
- Ask for the numbers early. Threshold income and adjusted income both need pay, bonus, other income and pension contributions. Do not estimate them from a payslip.
- Record which figure you used and when the client confirmed it, so the file shows why a contribution was or was not recommended.
- Check the year. The limits above are the 2026 to 2027 figures. Earlier years used different adjusted income limits, so a carry forward calculation needs each year's own numbers; see pension carry forward and the 2026-27 annual allowance, worked.
- Watch the lump sum. A client near retirement has a separate limit on tax-free cash: see the lump sum allowance of £268,275.
- Plan the workload. Changes to pensions and inheritance tax in April 2027 will crowd the diary; see the April 2027 workload plan.
The adviser, and the compliance function where the firm's procedures require it, reviews and signs every client-facing document and every suitability decision. The figures here are working notes, not advice to a client.
I did not read how adjusted income and threshold income are built up in detail (which employer contributions, which deductions), the money purchase annual allowance rules, carry forward rules beyond the link above, or the annual allowance charge itself. The GOV.UK pages I read did not state the taper rate; it comes from the HMRC manual.
Overlyft 
builds AI staff who join your advice firm's team and collect the pay, bonus and contribution figures for each high-earning client, set out the taper steps above in a draft working for the paraplanner, and flag the file when the threshold income test or the floor decides the answer, leaving the adviser to check and sign.
This is general information, not legal or financial advice. Check the sources named above for the tax year that applies.
Where this comes from: HMRC Pensions Tax Manual PTM057100, "Annual allowance: tapered annual allowance" (reduced by £1 for every £2 of adjusted income above £260,000 from 2023-24; applies only if threshold income is more than £200,000; cannot fall below £10,000; reduction rounded down to the nearest £1), and GOV.UK "Tax on your private pension contributions: annual allowance" and "Pension schemes rates" (annual allowance £60,000; threshold income limit £200,000; adjusted income limit £260,000; minimum tapered allowance £10,000, for 2026 to 2027). Read 16 October 2026.
AEO Lookup editorial team
We write practical guides for people who run small UK firms, and we check every fact against its source on the date shown. Read how we review, or tell us if something has changed.
