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Tapered annual allowance

Author Image The Technical Team
1 minute read
Last updated on 29th Apr 2020

Overview

As had been widely speculated given issues with the NHS Defined Benefits scheme the Chancellor announced changes to the Tapered Annual Allowance.

What did he say?

The chancellor announced that the tapered annual allowance limits will be altered. The Threshold and Adjusted Income limits will move from £110,000 and £150,000 respectively to £200,000 and £240,000.

Further to this the minimum Annual Allowance for those who are fully tapered will reduce from £10,000 to £4,000.

This will take effect for the 2020/21 tax year.

What does it mean?

The increased threshold limits will be welcomed by many as it should lift most people other than the really high net worth out of the "taper trap".

This will not just apply to those in the NHS scheme, but for all pension schemes.

If you are above both the threshold and adjusted income figures, your annual allowance is reduced by £1 for every £2 you are over the adjusted income figure. As this will now reduce to a minimum of £4,000 this could see an increase in AA charge of £2,700 for those fully impacted i.e. those with income and pension provision valued at over £312,000. This is based on a £10,000 contribution being paid in for a fully tapered member using the 2020/21 rules compared to the rules that have been in place since the 2016/17 tax year. 

But this new limit will mean that the reduction in the taper minimum will only begin at £300,000 of adjusted income. This could give scope for those with adjusted income below £300,000 that had capped pension contributions previously to avoid the tapered annual allowance charge to make additional contributions. 

Presently 250,000 individuals are affected by the tapered annual allowance, so this will reduce the impact for all those with adjusted income below £300,000 with many expected not to be tapered at all following these changes.

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