Contributing more than the tapered annual allowance

June 2025

Client Profile: Steven – FTSE 250 Senior Executive | June 2025

Current position

Steven is a senior executive at a FTSE 250 firm. His base salary is £200,000, but with bonuses and share incentives, his total annual compensation exceeds £500,000.

He contributes 10% of his salary (£20,000) to his workplace pension via salary sacrifice, and his employer contributes an additional 10% (£20,000).

At first glance, it all seems tax-efficient, but high earners like Steven are often caught by the tapered annual allowance, which limits how much pension saving qualifies for tax relief.

Objective: Wealth building and tax management

Steven wanted to maximise his money

Steven’s goals are clear:

• Turn surplus income into long-term wealth

• Build assets for financial freedom – the ability to quit work comfortably

• Avoid unnecessary tax charges

  
  

As his earnings pushed past critical tax thresholds, Steven needed a proactive approach to stay ahead of hidden tax traps.

Recommendations

We analysed Steven's current position and made the following recommendations based on his circumstances and objectives.

Settle annual allowance tax from the pension, not his pocket

Due to Steven’s income, his annual pension allowance was tapered to £10,000 in the last tax year.

With no unused carry forward available, his total contributions of £40,000 meant he exceeded the limit by £30,000, triggering a £13,500 tax bill at 45%.

Our recommendation: Transfer Steven’s pension to a scheme that allows Scheme Pays, enabling him to pay the charge directly from his pension pot, not his after-tax income.

Result: Saved approximately £12,000 in income tax he would otherwise have needed to cover the charge himself.

Adjust future pension contributions to avoid further tax charges

To prevent further breaches of the tapered allowance, Steven needed to reduce annual pension contributions to £10,000.

Following discussions with his employer, they agreed to:

• Contribute 5% of salary into his pension (£10,000 total)

• Pay the remaining 5% as additional salary

Result: Boosted Steven’s net income by £5,300 per year and prevented future annual allowance tax penalties (saving £13,500 in tax)

Invest surplus income tax efficiently with an offshore bond

Steven and his wife already maximise their ISA allowances (£20,000 each) and hold substantial company shares.

To make better use of his £100,000 annual bonus surplus, we recommended an offshore investment bond, offering:

• Tax-deferred growth on income and gains within the bond

• 5% annual withdrawals with no immediate tax liability

• The ability to gift the bond without income or capital gains tax

This strategy helps Steven build flexible, long-term wealth, outside the pension system and allows tax free, gross returns on his wealth.

Summary

Without advice, Steven would have:

• Paid £13,500 to HMRC unnecessarily

• Faced ongoing tax charges on pension contributions

• Missed the chance to invest surplus income tax-efficiently

  
  

Instead, with a few smart moves, he’s now: on track for financial freedom, avoiding tax traps high earners commonly fall into, and using tax wrappers that work with his income, not against it.

If you'd like to understand more about how we can support you on the path to financial freedom, please book a call below.

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Risk warnings

Please note, a pension is a long-term investment not normally accessible until 55 (57 from April 2028). Lower salary may impact the amount you can borrow, such as mortgages. Past performance is not an indicator for future performance.

Investments carry risk. the value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Tax planning is not regulated by the Financial Conduct Authority.