Taper of the Pension Annual Allowance

High earners, and we have number of them, must take care when making pension contributions.

Earlier this year, Jeremy Hunt, the Chancellor, increased the annual allowance that can be paid into pension to £60,000. Whilst this is a considerable amount of money, and probably only something the better off can afford to consider, this allowance is reduced above a certain threshold.

The rules are complex. However, in a nutshell, if someone has a “threshold income” in excess of £260,000 pa, they lose £1 of the Annual Allowance for every £2 they exceed the limit until there is only £10,000 left. However, you have to start with “taxable income.”

What is taxable income?

Essentially, it is your gross income (salary, investment income etc.) plus all benefits in kind such as company car, private medical insurance etc.

Next you have to calculate “adjusted income,” which allow as for certain deductions but also some additions.

What you are left with is the threshold income and if is at or below £200,000, then no taper will apply.

If you need help in this area, then please get in touch.

Peter Rutherford