In the Spring 2023 budget, the tapered annual allowance was increased from £4,000 to £10,000
So, for the tax year 2023/24, the threshold income is £200,000, and the adjusted income is £260,000.
The threshold income is calculated as an individual’s income from all sources, including employment, self-employment, and investments, but before any pension contributions are made. The adjusted income includes all sources of income, including pension contributions, but also takes into account any employer pension contributions.
If an individual’s adjusted income exceeds £260,000 and their threshold income is above £200,000, their annual allowance for pension contributions will be reduced by £1 for every £2 of adjusted income above the £260,000 threshold, up to a maximum reduction of £30,000. This means that the annual allowance can be reduced to as low as £10,000 for high earners, significantly limiting the amount of tax relief available on pension contributions.