Pension Contributions
Contriuting to your pension is not only a great way to plan for the future, but it also has it’s tax advantages. For those on a higher income, the tax advantages may be restricted.
The annual allowance is £60,000 per yeart, this is the amount that can be contributed to your pension scheme before you start losing the tax advantages associated to making pension contributions. For high earners though, the allowance is tapered.
Tapering only applies if you have both a threshold income over £200,000 and an adjusted income over £260,000.
What is my threshold income?
This is your taxable income from all sources less your gross pension contributions made via a net pay or relief at source arrangement. If you’ve sacrificed any income by taking salary sacrifice, then add this sacrificed income back on. If you have threshold income of £200,000 or more, then you should calculate your adjusted Income, in case you are subject to a tapered annual allowance.
What is my adjusted income?
This is your taxable income, plus pension contributions made via a net pay arrangement and by your employer. If this is £260,000 or more then you may have a tapered annual allowance.
Here’s how the taper works:
Your standard annual allowance is reduced by £1 (to a minimum of £10,000) for every £2 of your adjusted income over £260,000. This table gives an example of what your tapered annual allowance might look like:
| Adjusted income | Tapered AA |
|---|---|
| £360,000 and above | £10,000 |
| £350,000 | £15,000 |
| £340,000 | £20,000 |
| £330,000 | £25,000 |
| £320,000 | £30,000 |
| £310,000 | £35,000 |
| £300,000 | £40,000 |
| £290,000 | £45,000 |
| £280,000 | £50,000 |
| £270,000 | £55,000 |
| £260,000 and below | £60,000 |
As you can see, the pension anual allowance taper can be very complicated and can become a very constly mistake if not dealt with properly in your self-assessment tax return.
Please don’t hesitate to get in touch with us if we can be of any assistance with this.