Budget 2020 Tapered Pension Annual Allowance

Published / Last Updated on 19/03/2020

The limits for threshold income amd adjusted income have been increased to ensure less highers earners including medical staff get caught with tax penalties on tapered pensions annual allowance althoght the minimum annual allowance is now £4,000 for all.

In summary, the Pension Annual Allowance of £40,000 pa may be cut to a Tapered AA using the following test:

THRESHOLD INCOME TEST:  Gross Income package (salary, car, dividends, med ins etc) less YOUR OWN Pension Contributions only = “net” Threshold Income*  *Salary Sacrifice Payments Set Up After 08/07/16 must be included.  IF <£200k Threshold Income = NO TEST

ADJUSTED INCOME TEST = “net” Threshold Income + ALL Pension Contributions (Employee + Employer) – is your Threshold Income above £240,000.

If Adjusted Income is above £240k then AA is cut by £1 for every £2 Adjusted Income over £240k (Adjusted Income Threshold for Tapered AA)


If "Adjusted Income" = £300,000  then AA reduced e.g. £300,000 (Adjusted Income) minus £240k  = £60k over = 2 for 1 reduction = £30k reduction of AA from £40k to £10k.  i.e. Maximum you and employer can pay into pensions without facing tax changes is £10,000.

The Tapered Annual Allowance lowest it can be reduced to is £4,000 (Minimum AA)

if “Adjusted Income” = £312,000 (or more)  minus £240k  = £72k - 2 for 1 = £36k reduction of AA from £40k to £4k.

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