From 6 April 2014, the annual allowance for tax relief on pension savings in a registered pension scheme was reduced to £40,000. This includes contributions made by anyone else into your pension such as your employer. If your pension savings exceed this amount you may have to pay a tax charge and give details of this on a Self-Assessment tax return.
You will have a reduced (‘tapered’) annual allowance in the current tax year if both:
- your ‘threshold income’ is over £200,000
- your ‘adjusted income’ is over £240,000
The tapered annual allowance was introduced from 6 April 2016. For the taper to apply, the limits on threshold income and adjusted income must both be exceeded.
The £40,000 annual allowance will be reduced by £1 for every £2 of adjusted income over £240,000. The minimum annual allowance reduced in this way will be £4,000.
Prior to the 2020-21 tax year lower limits applied and for every £2 of adjusted income over £150,000, an individual’s annual allowance was reduced by £1. With the minimum annual allowance being £10,000.
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