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Where Taxpayers and Advisers Meet

Tapered Pension Allowance

Joined:Sun Jan 24, 2021 7:55 pm
Tapered Pension Allowance

Postby Balit » Sun Jan 24, 2021 8:06 pm


I'm trying to understand the calculation for Tapered Pension Allowance for 2020/21 for a simple case with only salary income and workplace pension contributions.
Could someone please confirm if I have got it right:

1. Start with taxable income from P60: £236,000.
2. No other income and no deductions apart from pension.
3. Employee contribution to workplace pension: £23,000
4. Employer contribution to workplace pension: £10,000
5. Threshold Income: £236,000 - £23,000 = £213,000.
6. Threshold Income > £200,000 so tapering applies.
7. Adjusted Income: £236,000 + £10,000 = £246,000.
8. Tapered Allowance: £40,000 - £6000/2 = £37,000

Does this look correct. Thanks for helping!

Joined:Mon Feb 13, 2017 10:09 am

Re: Tapered Pension Allowance

Postby someone » Mon Jan 25, 2021 9:49 am

Looks reasonable to me.

I don't recall the exact limits for 2020/21 but the calculation looks the same as the calc when the limit was 150K

One oddity, if you have any carry back available, is to increase your contribution to 36K, that takes your threshold income to 200K and so you get the full 40K this year, i.e. only using up 10K of carry back for 13K of extra contributions.

(If you are on this cusp then it can work out better to let the carry back build up and then do a big payment rather than max out each year so as to get one year with no or reduced taper occasionally.

Joined:Sun Jan 24, 2021 7:55 pm

Re: Tapered Pension Allowance

Postby Balit » Mon Jan 25, 2021 12:21 pm

Thank you for confirming. Nice tip about carry forward too!

Joined:Tue Feb 27, 2018 8:34 pm

Re: Tapered Pension Allowance

Postby ben_power » Fri Jan 29, 2021 11:44 pm

I agree with 'someone'.

For the taper to apply, the limits on threshold income and adjusted income must both be exceeded, which in your circumstances they do 'just'.
For every £2 of adjusted income over £240,000, an individual’s annual allowance is reduced by £1. The minimum annual allowance 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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