Higher earners are being warned to avoid the taper tax trap as HM Revenue & Customs reports a surge in savers hit with pension tax charges after breaching their annual allowance. New figures from HMRC show a 22 per cent rise in people declaring pension contributions above their annual allowance through self-assessment, despite the standard limit increasing from £40,000 to £60,000 in April 2023. Wealth managers said the increase was driven largely by high earners falling foul of the tapered annual allowance.

The taper applies when threshold income exceeds £200,000 and adjusted income is more than £260,000. In 2024-25, 30,440 people reported pension contributions above their personalised annual allowance through self-assessment, up from 24,950 a year earlier. The value of excess contributions climbed by a third to £672mn from £505mn.

Experts say the key is to plan before the tax year has ended rather than waiting for a pension statement or tax return to reveal a problem. Where a charge is unavoidable, savers should establish whether it can be paid from their pension scheme, but should not automatically stop pension saving simply to avoid a tax charge.