Tapering of annual allowance - Simon

This image shows the position for Simon.

Simon has employed income of £240,000 and rental income of £24,000 this tax year. So, his total taxable earnings are £264,000.

To calculate his threshold income, take his taxable income of £264,000 and deduct a pension contribution he made to a GPP of £15,000.

Simon's threshold income is £264,000 minus £15,000 which equals £249,000. As Simon's threshold income is over £200,000 his adjusted income needs to be calculated. 

To calculate his adjusted income, take his taxable income of £264,000, add in his employer's GPP contribution of £30,000. His adjusted income is £264,000 plus £30,000 which equals £294,000. 

Simon's annual allowance is reduced by £294,000 minus £240,000 divided by 2 which equals £27,000. His annual allowance is therefore £40,000 minus £27,000 which equals £13,000.

He faces an annual allowance tax charge on £32,000 (£30,000 + £15,000 - £13,000) unless he has unused annual allowance to carry forward from previous years.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.