What is tapering?
The Tapered Annual Allowance reduces a SSAS member's £60,000 pension contribution limit when their income crosses defined thresholds. It only applies to high earners — but for those it does apply to, the calculation hinges on subtle differences between "threshold income" and "adjusted income" set out at PTM057100. This guide explains the rules for 2026/27 with worked examples.
The Tapered Annual Allowance reduces a SSAS member’s £60,000 contribution limit when their adjusted income exceeds £260,000 in a tax year. For every £2 of income above £260,000, the Annual Allowance reduces by £1, down to a minimum of £10,000 (reached at £360,000 adjusted income). The taper only applies if threshold income — income before pension contributions — also exceeds £200,000. Unused allowance from previous years can still be carried forward and added above the tapered limit.
The Tapered Annual Allowance is a reduction in your pension Annual Allowance that applies when your income exceeds defined thresholds. It is one of the most misunderstood pension rules — particularly for company directors whose taxable income changes year to year, and whose own SSAS contributions affect the very calculation that determines whether tapering applies.
This guide explains the rules for the 2026/27 UK tax year as set out in the Finance Act 2004 (sections 228ZA–228C) and the HMRC Pensions Tax Manual at PTM057100. Figures here are illustrative; individual circumstances will vary.
What is the Tapered Annual Allowance?
Every member of a registered UK pension scheme — including a SSAS — has an Annual Allowance of £60,000 for the 2026/27 tax year. Contributions paid to all your pension arrangements (employer plus personal) that exceed this trigger an Annual Allowance charge. The Tapered Annual Allowance reduces that £60,000 figure for individuals whose income is above the high-income thresholds set out in legislation.
Where tapering applies, the standard £60,000 is reduced by £1 for every £2 of adjusted income above £260,000. The reduction stops at £50,000 above the threshold, leaving a minimum tapered Annual Allowance of £10,000. So in 2026/27 the tapered AA scales between £10,000 (for adjusted income of £360,000 and above) and £60,000 (for adjusted income at or below £260,000).
Threshold income vs adjusted income — the two-stage test
Tapering only applies if BOTH of the following are true:
- Your threshold income exceeds £200,000, and
- Your adjusted income exceeds £260,000.
If your threshold income is £200,000 or less, you receive the full £60,000 Annual Allowance regardless of how high your adjusted income is. This two-stage test is designed to prevent occasional one-off contributions from triggering tapering for moderate earners.
Threshold income
Broadly, threshold income is your total taxable income for the year (employment income, self-employment profits, dividends, savings, rental income, taxable benefits) minus any personal pension contributions you make under net pay arrangements, plus certain salary-sacrifice amounts entered into after 8 July 2015. It is your income figure without adding back pension contributions made on your behalf.
Adjusted income
Adjusted income is your threshold income plus the value of all pension contributions made for you during the tax year — both your own personal contributions and any contributions paid by your employer (including the sponsoring company of a SSAS). This is the figure that matters for the actual taper calculation.
The structural quirk for SSAS directors is that the act of making a large employer contribution to your SSAS pushes up your adjusted income — which can itself bring you into the tapered zone. Pension planning for high earners therefore involves modelling the contribution against the resulting adjusted income to find the optimum amount.
Worked example — director with £180,000 salary
A UK company director pays themselves a £180,000 salary and £20,000 in dividends in 2026/27, taking total taxable income to £200,000. They have no other income.
- Threshold income: £200,000 (within the £200,000 floor, so the first test would be borderline)
- If they make NO personal pension contribution and the company contributes £60,000 to their SSAS, adjusted income becomes £200,000 + £60,000 = £260,000. The £260,000 threshold for adjusted income is not exceeded — no taper applies, full £60,000 AA available.
- If the company contributes £100,000 to their SSAS, adjusted income becomes £200,000 + £100,000 = £300,000. Adjusted income exceeds £260,000 by £40,000. Reduction = £40,000 ÷ 2 = £20,000. Tapered AA = £60,000 − £20,000 = £40,000. The £100,000 contribution exceeds the tapered AA by £60,000 — but unused carry-forward from prior years may absorb the excess. See our SSAS contribution limits guide for the full carry-forward rules.
Carry forward and tapering
Unused Annual Allowance from the previous three tax years can be carried forward and added to the current year's allowance. Carry forward uses each prior year's tapered AA, not the standard £60,000. So if you were also tapered to £40,000 last year and made no contribution, you can carry forward £40,000 into this year — not £60,000.
Carry forward requires you to have been a member of a registered UK pension scheme during the years from which you are carrying. For a director establishing a brand-new SSAS, carry forward from earlier years is only available if there was prior pension scheme membership.
The Annual Allowance charge
If pension input in a tax year exceeds your available Annual Allowance (after taper, after carry-forward), the excess is added to your taxable income and taxed at your marginal rate. There is no separate "pension charge" rate — it is simply that the relief is clawed back as additional income tax.
For the highest earners, the Annual Allowance charge can be settled through "Scheme Pays" — the SSAS pays the charge on your behalf, reducing your future benefits, in exchange for taking the immediate tax liability off your personal Self Assessment. This is an election rather than an automatic mechanism and must be made within statutory deadlines.
Money Purchase Annual Allowance interaction
If you have already accessed pension benefits flexibly (drawdown, UFPLS, certain lump sums), the Money Purchase Annual Allowance of £10,000 may apply instead of — or as a sub-limit within — the £60,000 standard AA. MPAA and tapering interact in specific ways set out at PTM056510. For most directors who have not yet drawn benefits, MPAA does not apply.
Practical considerations for SSAS directors
- Tapering is highly sensitive to how income is taken. Dividends are part of threshold income; pension contributions are part of adjusted income. The mix matters.
- Bonus structures and one-off windfalls in a single tax year can trigger tapering for that year only — planning ahead with the sponsoring company finance team allows contribution timing to be optimised.
- The HMRC Annual Allowance calculator is available on GOV.UK and is the authoritative reference for working out your specific position.
- Once a charge has been triggered, accurate reporting on Self Assessment is mandatory — failure to declare an AA charge is an unprompted disclosure issue that HMRC takes seriously.
What to read next
- SSAS contribution limits and carry forward — the underlying £60,000 Annual Allowance and three-year carry-forward mechanics.
- SSAS tax savings for UK directors — how SSAS contributions reduce Corporation Tax and personal tax exposure.
- HMRC SSAS pension rules — the full HMRC framework that sits behind every SSAS scheme.
- Setup and governance — how a SSAS is established and the role of the scheme administrator in tax compliance.
Important: Carry forward calculations can be complex, particularly if you have changed employers, held multiple pension schemes, or have any defined benefit pension entitlement. It is worth confirming carry forward calculations with a qualified adviser before making a large single-year contribution.
What Happens if You Exceed the Annual Allowance
If your total pension contributions — employer and personal, across all schemes — exceed your available Annual Allowance in a tax year, the excess is subject to an Annual Allowance charge. This is a tax charge levied on the individual member (not the employer), charged at the individual's marginal Income Tax rate.
For example, if a director has £60,000 of available Annual Allowance and the company contributes £80,000 in a single year, the £20,000 excess would be added to the individual's taxable income and taxed at their marginal rate — typically 40% or 45% for most directors in this position.
The charge effectively claws back the tax relief on the excess. This does not mean the excess contribution is returned; the money stays in the pension. But the tax advantage on that portion is neutralised.
HMRC allows a mechanism called "scheme pays" for large Annual Allowance charges — if the charge is at least £2,000 and the pension scheme is responsible for the excess, the scheme can pay the charge on your behalf in exchange for a reduction in your eventual pension benefits. For a SSAS, voluntary scheme pays is also available but requires trustee agreement.
The Money Purchase Annual Allowance (MPAA): £10,000
If you have already accessed your SSAS or another money purchase pension flexibly — for example, by taking income through flexi-access drawdown — the standard £60,000 Annual Allowance no longer applies to your money purchase pension contributions. Instead, you are subject to the Money Purchase Annual Allowance (MPAA), which is currently £10,000 per year.
The MPAA is designed to prevent individuals from recycling pension funds — taking money out in drawdown and immediately reinvesting it as a tax-relieved contribution. Once triggered, the MPAA applies permanently.
Actions that trigger the MPAA include:
- Taking income through flexi-access drawdown from any money purchase pension
- Receiving an uncrystallised funds pension lump sum (UFPLS)
- Purchasing a flexible (investment-linked) annuity where income can vary downwards
Taking your tax-free cash lump sum alone (without also taking income from drawdown) does not trigger the MPAA, provided the rest of the uncrystallised fund remains in drawdown but no drawdown income has been taken.
Critical Point: If you are still contributing to your SSAS — particularly through large employer contributions — triggering the MPAA could have serious consequences, limiting your annual contributions to just £10,000. Plan carefully before accessing pension funds flexibly if you intend to continue making significant contributions.
The Lifetime Allowance: Abolished from April 2024
Until April 2023, there was a limit on the total amount of pension savings you could build up in your lifetime before facing a tax charge — the Lifetime Allowance (LTA). In its final form, the LTA was £1,073,100.
The LTA has now been abolished. From 6 April 2024, there is no lifetime limit on the amount of pension wealth you can accumulate. This is a significant change for higher earners who were previously managing their SSAS contributions carefully to avoid the LTA charge.
However, the abolition of the LTA does not mean there are no limits on pension benefits. Instead, HMRC has introduced two new lump sum allowances:
| Allowance | Amount (2025/26) | What it covers |
|---|---|---|
| Lump Sum Allowance (LSA) | £268,275 | The maximum tax-free lump sums you can take during your lifetime (including tax-free cash on crystallisation) |
| Lump Sum and Death Benefit Allowance (LSDBA) | £1,073,100 | The total of tax-free lump sums (including death benefit lump sums) that can be paid from all your pension schemes combined |
For most directors, the practical effect is that the 25% tax-free cash entitlement is now capped at £268,275 — regardless of total fund size. Funds above this threshold that are drawn as lump sums will be subject to Income Tax at the individual's marginal rate. Pension income taken through drawdown remains subject to Income Tax in the usual way.
Contribution Rules in Practice: A Summary for Directors
| Rule | Detail (2025/26) |
|---|---|
| Annual allowance | £60,000 per individual across all pension arrangements |
| Employer contribution cap | None (but contributions above AA trigger an individual tax charge) |
| Personal contribution cap | The lower of £60,000 or 100% of relevant UK earnings |
| Carry forward | Up to 3 previous tax years of unused allowance; must be a scheme member in those years |
| MPAA (if drawdown taken) | £10,000 per year |
| Lifetime allowance | Abolished from 6 April 2024 |
| Tax-free cash maximum | £268,275 (Lump Sum Allowance) regardless of fund size |
| Annual allowance charge rate | Individual's marginal Income Tax rate on the excess |
Frequently Asked Questions
What is the SSAS Annual Allowance for 2025/26?
The standard Annual Allowance is £60,000 per member, per tax year. This applies to the total of all employer contributions, member personal contributions, and HMRC tax relief into the scheme (Finance Act 2004, s.228, as amended by Finance (No. 2) Act 2023). The allowance is per individual, not per scheme — it covers all your registered pensions combined.
Can I carry forward unused SSAS Annual Allowance?
Yes. You can carry forward unused Annual Allowance from the previous three tax years, provided you were a member of a registered pension scheme in each of those years. With full carry forward, a director could potentially contribute up to £240,000 in a single tax year (current year £60k + three prior years £60k each), subject to the company being able to support the contribution under the wholly-and-exclusively rule.
What is the Tapered Annual Allowance for SSAS?
If your adjusted income exceeds £260,000 in a tax year, your Annual Allowance is tapered. For every £2 of income over £260,000, the allowance reduces by £1, down to a floor of £10,000 (for adjusted income of £360,000 or more). The taper is calculated per tax year and depends on both threshold income and adjusted income tests.
Can my company contribute more to my SSAS than I earn in salary?
Yes — employer contributions are not capped by your salary. Personal contributions are limited to your relevant UK earnings (typically salary, not dividends), but employer contributions are limited only by the Annual Allowance and the company’s ability to satisfy HMRC’s wholly-and-exclusively test. This is why most director-shareholder SSAS contributions come from the company, not from the director personally.
Are SSAS contributions tax-deductible for my company?
Yes. Employer contributions to a SSAS are normally deductible against Corporation Tax in the accounting period they are paid, provided they meet HMRC’s wholly-and-exclusively test — the contribution must be made for genuine business purposes, not pure tax avoidance. A company paying Corporation Tax at 25% saves £15,000 of tax on a £60,000 SSAS contribution.
Do I get personal Income Tax relief on SSAS contributions?
Personal contributions get Income Tax relief at your marginal rate. Basic rate relief (20%) is added at source by the SSAS administrator; higher and additional rate relief is claimed via Self Assessment. Employer contributions don’t generate personal tax relief because the company has already received Corporation Tax deduction — they go into the scheme gross.
Is there a lifetime limit on SSAS contributions?
The Lifetime Allowance was abolished in April 2024 and replaced with the Lump Sum Allowance (£268,275) and the Lump Sum and Death Benefit Allowance (£1,073,100). These limit the tax-free lump sums you can take, not the total fund value or the total contributions you can make over your lifetime. There is no longer a cap on how large your SSAS pot can grow.
Can my SSAS receive contributions from more than one company?
Yes, if you are a member or director of more than one limited company. Each sponsoring employer can make contributions, subject to your overall Annual Allowance across all schemes. The contributions need to be made on a wholly-and-exclusively basis from each contributing company — the contribution amount must be defensible as remuneration for services rendered to that specific company.
Key Point: The £60,000 Annual Allowance applies per individual member of the SSAS. If your SSAS has three director members, the scheme as a whole could potentially receive up to £180,000 in combined contributions — £60,000 per person — subject to each individual staying within their own allowance.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. SSAS pensions are corporate pension schemes registered with HMRC and overseen by The Pensions Regulator (TPR), and do not require FCA regulation. Tax rules are subject to change and depend on individual circumstances. The information in this article is based on our understanding of HMRC rules for the 2025/26 tax year.