For most people, the maximum amount both you and your employer can pay into pensions (Annual Allowance) is the lower of
Reduced/Tapered Annual Allowance
Many may not be aware but higher earners may suffer a reduction in the amount that they and their employers can pay into pensions. This is because a tapered annual allowance on pension contributions may be applied when your earnings package is above certain thresholds. If your adjusted income is above a certain limit, then the maximum amount you and your employer can contribute to pension schemes in total is scaled down. Your total income goes through two tests:
Recovering Some or All of you Annual Allowance
Despite being restricted by a tapered annual allowance, if you have unused annual allowance from the previous 3 tax years, you can recover some or all of the taper reduction.
This is unusual but we have discussed this with a Senior Tax Inspector at HMRC and he confirmed that whilst unusual, recovering tapered annual allowance reductions work, in theory and practice, in the same way that by paying pension contributions of £25,140 to get your income down from £125,140 to £100,000 means you get back your full personal allowance of £12,570 meaning technically tax relief of 60% on the £25,140 contribution or if you earn £60,000 and therefore lose child benefit (family allowance), if you pay £10,000 into a pension scheme, your income is adjusted down to £50,000 meaning you now are entitled to child benefit again.
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