In the Spring 2023 Budget the pension Annual Allowance (AA) i.e., the maximum value or equivalent value that can be contributed by both you and your employer to your pension schemes each tax year was increased from £40,000 pa to £60,000 pa from 06/04/2023. If you exceed this allowance, you face tax penalties. However, if you exceed a certain level of overall income, the annual allowance is reduced i.e., tapered back. This is called the Tapered Annual Allowance.
How is the Annual Allowance Calculated? Pension Allowances
What is the Tapered Annual Allowance?
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:
If your Adjusted Income is above £260,000 then your Pension Annual Allowance (£60,000 from 6 April 2023) is cut by £1 for every £2 Adjusted Income over £260,000 (Adjusted Income Threshold for Tapered Annual Allowance).
Minimum Tapered Annual Allowance (MTAA) from April 2023
This was increased effective 6 April 2023 from £4,000 pa to £10,000 pa.
Example: If "Adjusted Income" = £340,000 then your pension AA is reduced i.e., tapered:
The lowest the Minimum Tapered Annual Allowance (MTAA) can be reduced to was £4,000 pa and is now £10,000 pa.
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