Tapered Annual Allowance: Pension Planning for HNW Clients in 2026/27

A client earning a GBP 300,000 base salary, GBP 80,000 bonus and benefiting from a 15 percent employer pension contribution is exactly the profile that the tapered annual allowance was designed to catch. On paper the GBP 60,000 annual allowance sits there as the headline figure. In practice, that client’s available allowance for 2026/27 is GBP 10,000, the statutory floor.

For wealth advisers running HNW books, this is the most expensive misunderstanding in pension planning. Inadvertent breaches trigger annual allowance charges at marginal rates of 45 percent or more. The cliff sits inside payslips, dividends, bonus letters, and trustee resolutions that the adviser rarely sees in real time. By the time it surfaces in a tax return, the contributions are already made and the charge is already due.

This piece walks through how the taper actually works in 2026/27, where it commonly bites, and what a disciplined planning process looks like for a HNW client between now and 5 April 2027.

How the taper works in 2026/27

The tapered annual allowance has two tests, both of which must be failed before any reduction applies:

• Threshold income. Broadly, taxable income minus personal pension contributions made by the individual. The threshold is GBP 200,000.
• Adjusted income. Broadly, taxable income plus employer pension contributions. The threshold is GBP 260,000.

Where both tests are failed, the annual allowance is reduced by GBP 1 for every GBP 2 of adjusted income above GBP 260,000, down to a floor of GBP 10,000. That floor is reached at adjusted income of GBP 360,000.

The structure has been in place since 6 April 2023, when the floor was lifted from GBP 4,000 to GBP 10,000 and the thresholds were raised. The detailed mechanics are set out in the HMRC Pensions Tax Manual at PTM057100 and the practitioner guidance Pension schemes: work out your tapered annual allowance.

The taper in pounds

Adjusted income	Annual allowance
GBP 260,000 or below	GBP 60,000
GBP 280,000	GBP 50,000
GBP 300,000	GBP 40,000
GBP 320,000	GBP 30,000
GBP 340,000	GBP 20,000
GBP 360,000 or above	GBP 10,000

For each GBP 20,000 of adjusted income above GBP 260,000, the available allowance falls by GBP 10,000. There is no smoothing and no run-off period. A bonus paid on 4 April that pushes adjusted income from GBP 259,000 to GBP 281,000 in the year it lands costs the client GBP 11,000 of allowance that they cannot recover from that year.

The HNW profiles where taper bites hardest

Across a typical adviser book, four client types are reliably caught by the taper. None of them is exotic.

Senior executives with large bonus or RSU awards. Annual cash bonuses, vesting RSUs, and LTIP payouts all flow into adjusted income in the year they are received. A client with a stable base salary below GBP 200,000 can sit comfortably outside the taper in most years and then breach both thresholds in a single year when a long-vested RSU tranche releases.

Owner-managers structuring around salary and dividends. Dividends from a personal services company count towards both threshold and adjusted income. Clients who historically rotated remuneration through dividends to stay under thresholds are increasingly catching themselves out as dividend tax rates rise and dividend allowances shrink.

Partners in professional services firms. LLP profit shares are taxed as self-employment income and feed into both income tests. Partners with mid-career profit shares in the GBP 250,000 to GBP 350,000 range often sit deep in taper without realising, particularly where the firm makes meaningful employer pension contributions on top.

Senior public sector clients in defined benefit schemes. Pension input amounts in NHS, Teachers, and Civil Service schemes are calculated from accrual, not contributions. A pay rise that triggers a higher pensionable salary can spike the pension input amount, breach the tapered allowance, and produce a charge that the client did not know they were on the hook for.

Where advisers go wrong in practice

The most common errors are not technical, they are process errors. Five recur across compliance file reviews.

1. Using last year’s adjusted income. Tax year planning conversations in April often anchor to the most recent tax return. For HNW clients with variable income, this can be GBP 50,000 to GBP 100,000 adrift of where the current year will actually land. Always model the in-year position and stress test with sensible upside.
2. Treating employer contributions as cost-free. Employer contributions feel efficient because there is no immediate income tax or National Insurance on the way in. They are not free in the taper context. Every GBP 1 of employer contribution is GBP 1 of adjusted income.
3. Forgetting RSU and LTIP vesting timing. Equity awards vest on a schedule set years earlier. They land in adjusted income in the year of vesting, not the year of grant. A simple share scheme calendar tied to the client’s payroll feeds is worth the effort.
4. Missing the partial taper. Many advisers think in terms of GBP 60,000 or GBP 10,000 with nothing in between. The taper is linear. A client with GBP 290,000 of adjusted income has a GBP 45,000 allowance, not GBP 10,000.
5. Skipping carry forward calculations. Carry forward is the single largest mitigant. Advisers who do not maintain a year-by-year register of available carry forward for HNW clients are leaving meaningful allowance unused.

Carry forward as the planning lever

Where the taper bites, carry forward is usually the first place to look. The rules are straightforward but the bookkeeping is fiddly.

• Look back three tax years from the current year.
• Use any unused annual allowance from those years, oldest first, after applying the taper that was in force in each year.
• The individual must have been a member of a registered pension scheme in each year they want to use, even if no contributions were made.
• The current year’s allowance must be used in full before carry forward is available.

For 2026/27, the relevant prior years are 2023/24, 2024/25 and 2025/26, all of which had the GBP 60,000 headline allowance and the GBP 10,000 floor. The detail and worked examples sit in the HMRC Pensions Tax Manual at PTM056510 and in the public-facing guidance on checking unused annual allowances.

A worked example

A client has GBP 300,000 of adjusted income in 2026/27, giving a tapered allowance of GBP 40,000. Their prior-year position looks like this:

Year	Tapered allowance	Contributions	Unused
2023/24	GBP 60,000	GBP 30,000	GBP 30,000
2024/25	GBP 50,000	GBP 35,000	GBP 15,000
2025/26	GBP 40,000	GBP 40,000	GBP 0
2026/27	GBP 40,000	TBD	TBD

The client can contribute up to GBP 40,000 in 2026/27 using the current year’s allowance, then use GBP 30,000 from 2023/24 and GBP 15,000 from 2024/25 for a total of GBP 85,000 without triggering an annual allowance charge. After 5 April 2027, the GBP 30,000 from 2023/24 falls out of carry forward and is lost forever.

That GBP 30,000 of lapsing allowance is the kind of figure that a structured planning conversation in May, not in March, will reliably capture.

The interaction with the abolished lifetime allowance

The lifetime allowance was abolished from 6 April 2024 and replaced by the lump sum allowance of GBP 268,275 and the lump sum and death benefit allowance of GBP 1,073,100. The background is documented in the official guidance on the lifetime allowance and the wider annual allowance guidance.

Two implications for HNW advisers in 2026/27:

• The cap that historically discouraged further pension funding for some HNW clients no longer exists. For clients with large existing pension pots who paused contributions, restarting is now usually beneficial unless the lump sum allowance is already a binding constraint.
• The tax-free lump sum is capped at GBP 268,275. Marginal contributions above the level needed to fund that lump sum still benefit from full tax relief and tax-free internal growth, but the headline 25 percent tax-free withdrawal does not apply to the excess.

For a HNW client with an existing pot of GBP 1.5m and adjusted income of GBP 300,000, restarting GBP 40,000 of contributions in 2026/27 is typically a clear win at marginal income tax relief of 45 percent. The same client would have faced lifetime allowance charges before April 2024.

A planning process that works

A small number of advisers run a structured taper review across every HNW client each May. The process tends to look like this:

1. Confirm the client’s expected adjusted and threshold income for 2026/27. Pull payslips, dividend schedules, partnership profit estimates, and any known bonus or RSU vesting. Build a range, not a point estimate.
2. Calculate the tapered annual allowance. Apply the formula to the central estimate and to the upside scenario.
3. Pull the carry forward position. For each of the three prior years, list the tapered allowance that applied, contributions made, and unused allowance available.
4. Stress test for late-year income. Identify which income components are flexible (deferral of bonus, timing of dividend declarations) and which are not (RSU vesting, employer contribution timing).
5. Set the contribution plan. Decide on personal and employer contributions for the year, confirm scheme pays eligibility, and document the rationale.
6. Schedule a Q4 review. Revisit before 5 April once the actual position is clearer, with time to flex the final contribution before the year closes.

That process produces a written file note that supports the firm’s Consumer Duty obligations on good outcomes and fair value. It is also the file note that defends the firm if the client later challenges an avoidable annual allowance charge.

What this means for the rest of the financial plan

The tapered annual allowance does not exist in isolation. For HNW clients, it sits inside a wider tax structure that includes the broader new tax year planning agenda, the tax implications of DFM portfolios held outside wrappers, and the regulatory backdrop of Consumer Duty obligations that hold advisers to a documented good-outcome standard.

For clients, the experience that matters is feeling that the adviser is on top of the numbers before they are. Research on what HNW clients actually want from their adviser consistently lands on the same point: not investment performance, but proactive, technical, year-round attention to the things that move the dial.

The taper is one of those things. It is unglamorous, it is fiddly, and it pays handsomely.

Start in May, not in March

The advisers who deliver the best taper outcomes are the ones who treat May as the planning month. The information needed to run the calculation is available now: 2025/26 tax returns are filed or close to it, in-year income for 2026/27 is forecastable, and there are eleven months to flex contributions before the year closes.

By March 2027, the room to manoeuvre is gone. An avoidable annual allowance charge at 45 percent is not a regulatory failure, but it is a service failure. For HNW clients paying for proactive advice, it is the kind of failure they remember.