Changes to the Tapered Annual Allowance (TAA)

John Wilson

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The Finance Act 2020 received Royal Assent on 22 July[1]. It has only one explicit pensions measure: Section 22, which reforms, from 6 April 2020, the Tapered Annual Allowance (TAA)  – see below for more detail.

As a reminder, the Lifetime Allowance has also changed from the same date and now stands at £1,073,100 (previously, £1,055,000).

Reform of the TAA

Following an increase in the ‘threshold income’ and ‘adjusted income’[2], those individuals with a threshold income of between £110,000 and £200,000 and adjusted income of between £150,000 and £240,000 will no longer be impacted by the TAA. However, for individuals who do continue to be affected, the minimum TAA will be £4,000 (previously, £10,000).

This measure will affect an estimated 250,000 individuals who, before 6 April 2020, were impacted by the TAA. This figure is made up of:

  • individuals who no longer fit the criteria as they now fall below either one or both of the thresholds,
  • those who are still impacted by the taper but are entitled to make more tax relievable pension contributions, and
  • individuals who will be impacted by the reduced minimum TAA.

Technical Detail

  • The threshold income, which is broadly net income before tax (excluding pension contributions), is increased from £110,000 to £200,000.
  • The adjusted income, which is broadly net income plus pension accrual, is increased from £150,000 to £240,000.
  • The minimum TAA is decreased from £10,000 to £4,000. So, someone affected could have a TAA of between £4,000 and £40,000.
  • The measure will have effect for the tax year 2020/2021 and for benefits accrued on or after 6 April 2020.

The government introduced the TAA from 6 April 2016 for those with incomes of over £150,000. The TAA is triggered when both the threshold income and the adjusted income exceeds their designated limits. The £40,000 annual allowance is reduced by £1 for every £2 that the adjusted income exceeds £150,000, to a minimum annual allowance of £10,000.


[1] https://www.legislation.gov.uk/ukpga/2020/14/contents/enacted

[2] https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm057100

John Wilson

Post by John Wilson

John is Head of Technical, Research and Policy with over 33 years’ experience in employee benefits knowledge management

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