We have put together some simple examples to help explain Tapered annual allowance and how the client may be affected.
You may have seen our article “Tapered annual allowance & high earners” describing the changes brought in from 6 April 2016 with amendments in April 2020 and April 2023 affecting those with high earnings with the tests for those earning £200,000 (threshold income) or more and the potential for losing annual allowance for clients with adjusted income over £260,000.
Here we have put together some simple examples to explain a few of the different situations and how the client may be affected.
You will note that under examples B, C, E and J the clients have made pension contributions before the Threshold and Adjusted income levels have been calculated and, in these cases, the reduced annual allowance has meant that the client has now breached the lower annual allowance. This is a scenario that high earners will need to be aware of.
Please note: these examples are designed to be read after you have read the Tapered Annual Allowance & High Earners article.