This measure restricts pension tax relief by introducing a tapered reduction in the amount of the annual allowance for individuals with an adjusted income of over £150,000 and a threshold income over £110,000.
- The annual allowance will be reduced for individuals who have ‘adjusted income’ over £150,000 a year.
- The reduction in the annual allowance is not a flat rate but reduces by £1 for every £2 over £150,000
- The maximum reduction is £30,000
- The reduction does not apply to individuals who have ‘threshold income’ of no more than £110,000.
Since 6 April 2016, individuals who have taxable income for a tax year of greater than £150,000 will have their annual allowance for that tax year restricted. It will be reduced, so that for every £2 of income they have over £150,000, their annual allowance is reduced by £1. Any resulting reduced annual allowance is rounded down to the nearest whole pound.
The maximum reduction will be £30,000, so anyone with income of £210,000 or more will have an annual allowance of £10,000. High income individuals caught by the restriction may therefore have to reduce the contributions paid by them and/or their employers or suffer an annual allowance charge.
However the tapered reduction doesn’t apply to anyone with ‘threshold income’ of no more than £110,000.
Clearly the definitions of the two incomes are crucial to understanding whether someone is affected by the tapered reduction or not.