The 8th July 2015 budget announced the introduction of tapering from 6th April 2016.
This is a reduction of the annual allowance received by an individual of £1 for every £2 of adjusted earnings in excess of £150,000.00.
Adjusted earnings are defined as:The individuals net income for the tax year as calculated under the steps 1 and 2 of section 23 of the Income Tax Act 2007, plusThe amount of any relief under section 193(4) of Finance Act 2004 (a claim for excess relief under net pay) and section 194(1) of Finance Act 2004 (relief on making a claim) deducted at step 2, plus,The amount of any pension contributions made from any employment income of the individual tax year under net pay, under section 193(2) of Finance Act 2004, (to ensure fairness between those who have contributions deducted via net pay and those through relief at source), plus,Where non domiciled individuals make contributions to overseas pension schemes, any relief claimed under Chapter 2 of Part 5 of the Income Tax (Earnings and Pensions) Act 2003 for the tax year, plus,The value of any employer contributions for the tax year, but less,The amount of any lump sum death accrues to the individual in the tax year mentioned in section 636A(4ZA). That is those that were previously subject to the special lump sum death benefit charge but will, from April 2016, be taxed at the recipients marginal rate.
Individuals who have net earnings of less than £110,000.00 per annum are exempt from tapering. This is known as the threshold income. Defined as:
The individuals net income for the tax year as calculated under the steps 1 and 2 of section 23 of the Income Tax Act 2007, plus the amount of any lump sum death accrues to the individual in the tax year mentioned in section 636A(4ZA), plus,The amount of any employment income given up for pension provision as a result of any salary sacrifice made on or after 9 July 2015.
The employer contribution for adjusted income is calculated as the pension input amount for the given tax year, and is taken from the employee contributions as part of the adjusted income.