What is it? The Personal Allowance is the maximum amount of income you can earn in a tax year before paying tax.
How much is it? The standard Personal Allowance for the 2022/23 tax year is £12,570. It is currently due to stay frozen until April 2028.
Annual Allowance (AA)
What is it? The AA is a limit to the total amount of contributions that can be paid into a defined contribution pension scheme and the total amount of benefits that you can build up in a defined benefit pension scheme in a single tax year, for tax relief purposes and without paying additional tax.
How much is it? The AA for the 2022/23 tax year is £40,000. It is currently due to stay frozen until 2026.
What if I’m a high earner? Since 6 April 2020, people with a taxable income over £240,000 will have their annual allowance for that tax year restricted. This means that for every £2 of income they have over £240,000, their annual allowance is reduced by £1.
The maximum reduction is £36,000. So anyone with an income of £312,000 or more has an annual allowance of £4,000. People with high income caught by the restriction may have to reduce the contributions paid by them and/or their employer or an annual allowance charge will apply.
However, the tapered reduction doesn't apply to anyone with 'threshold income' of no more than £200,000.
Between 6 April 2016 and 5 April 2020 individuals who had taxable income greater than £150,000 had their annual allowance restricted. It was reduced, so that for every £2 of income they had over £150,000, their annual allowance was reduced by £1. The maximum reduction was £30,000, so anyone with income of £210,000 or more had an annual allowance of £10,000.
Lifetime Allowance (LTA)
What is it? The LTA is the maximum amount of pension from all sources that you can build up in your lifetime (excluding State Pension), without incurring a tax charge.
How much is it? The LTA for the 2022/23 tax year is £1,073,100 and has been frozen at this level until the 2025/26 tax year.
There are also a number of other allowances that may apply to you. To read about these, or to find out more about the allowances above, please visit www.gov.uk/tax-on-your-private-pension