Pension annual allowance charge (UK income tax)
An annual allowance charge can arise when an individual’s pension input amount exceeds the available annual allowance, including eligible unused allowance carried forward from the previous three tax years. The standard annual allowance for 2025–26 is £60,000, but it may be tapered for high income or affected by other statutory rules. The charge is calculated using the individual’s relevant income-tax rates; the annual allowance is distinct from the limit on tax relief for individual contributions.
Worked example
For 2025–26, assume an individual has £70,000 pension input, the standard £60,000 allowance, no eligible carry-forward and no reduction to the allowance. The excess potentially subject to the annual allowance charge is £10,000; the tax depends on the individual’s income-tax rates.
Common mistake
Treating the £60,000 standard figure as a universal allowance without checking taper and eligible carry-forward, or confusing the input excess with the amount of tax due.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | TX (UK) | Supporting | June 2026–June 2027 |