The tapered AA

The tapered AA was introduced by the Finance Act 2015. This affects individuals with an ‘adjusted income’ of £240,000 a year from April 2020 but only if their income exceeds a £200,000 threshold. We understand that threshold income is all income subject to income tax, including:

Employer Basic Salary e.g. £230,000
Bonus and commission
P11d
Personal Savings interest
Investment income
Rental income
Pension/taxable lump sums
Other employments
Less deductions Employee pension contributions not made via SmartPension e.g. £10,000
Payroll charitable giving
Plus (i.e. add these back in) certain contributions paid via salary sacrifice You should contact BA for clarification as to what pension contributions should be added back in. e.g. £28,000
THRESHOLD INCOME e.g. £248,000

If an individual's threshold income is less than £200,000, they will not be affected by the tapered AA and the standard AA will apply. However, if an individual’s threshold income exceeds £200,000 then an ‘adjusted income’ would need to be calculated. In the latter case, an individual’s AA will be reduced by £1 for every £2 by which their 'adjusted income' exceeds £240,000 with a maximum reduction of £36,000 - so the lowest AA could be £4,000 applicable to individuals with an ‘adjusted income’ of £312,000 or more.

The 'adjusted income' is calculated by adding an individual’s AA pension input amount (PIA), excluding AVCs, to their threshold income.

EXAMPLE (using details above)
Pension as at 6 April 2020 is: £30,000
Pension at 5 April 2021 is: £36,000
Appropriate percentage is: 1.1% (hypothetical CPI increase)
Own savings made to BAPP over the year £28,000
Calculation
PIA end amount: £36,000 x 16 = £576,000
PIA start amount: £30,000 x 16 x 1.011 = £485,280
Value of employer’s BAPP pension contributions £74,720
Member’s income net of Scheme contributions: £220,000
Plus value of employer’s pension contribution: £74,720
Adjusted income: £294,720
The AA reduction is therefore: £294,720 - £240,000 = £54,720 ÷ 2 =
£27,360
The individual's AA for 2020/21 is therefore: £40,000 - £27,360 = £12,640
AA CALCULATION
PIA end amount: £36,000 x 16 = £576,000
PIA start amount: £30,000 x 16 x 1.011 = £485,280
Increase in pension value over the year £90,720
Plus BAPP contributions £28,000
Total pension input for year £118,720
Available AA £12,640
Amount subject to AA charge
£106,080

It is the member’s responsibility to assess whether they are affected by the tapered AA and to calculate the amount of their reduced AA. The Trustee will continue to provide AA statements for members whose pension input amount exceeds the standard £40,000 AA

You should seek independent financial advice if you think you are affected by the AA.

 
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