ACCA Taxation (F6) Practice Exam

What is the minimum annual tapered allowance?

1. £2000

2. £3000

3. £4000

4. £5000

The correct answer is: £4000

The minimum annual tapered allowance in the context of the UK pension tax relief system is essential for understanding how tax relief interacts with an individual's earnings. The tapered annual allowance affects individuals whose "adjusted income" exceeds £240,000. As income rises, the annual allowance decreases, leading to a minimum tapered annual allowance of £4,000. This figure is significant because it sets a baseline for tax relief that high earners can effectively claim on their pension contributions, ensuring they still receive some level of tax advantage even as their income increases. Understanding this rule is crucial for effective financial planning, particularly for those close to the income thresholds that trigger tapering. While other amounts might represent different limits or allowances, they do not reflect the specific minimum tapered allowance established by current tax legislation for high-income earners. This framework is vital for anyone involved in tax planning or retirement savings in the UK, ensuring individuals maximize their pension contributions while remaining compliant with tax regulations.