This guide is for financial advisers only. It mustn't be distributed to, or relied on by, customers. It is based on our understanding of legislation as at December 2023.
Overview
‘Carry forward’ may allow contributions in excess of the standard annual allowance to be paid without incurring a tax charge. This could be attractive to individuals who have received a large salary increase, whose profits have been good in a self-employed business, who have been made redundant, or who are approaching retirement.
It works by ‘carrying forward’ unused annual allowance from earlier tax years. The individual must have been a member of a registered pension scheme in the tax year from which the unused allowance is being carried forward. For this purpose, ‘member’ includes active, deferred and pensioner members. This means that it’s not necessary for contributions to have been paid, or benefit accrued, in the carry forward year. Contributions made using carry forward can be paid to any registered pension scheme.
Note that if, on retirement, an immediate annuity was secured in the member’s own name, that annuity is not treated as a registered pension scheme and so cannot be taken into consideration when deciding whether or not carry forward is available. HM Revenue & Customs' (HMRC) guidance on this can be seen here.
Personal contributions (including third-party contributions) made using carry forward are tax relievable up to the greater of £3,600 and the individual’s relevant UK earnings in the tax year that the contributions are paid. Employer contributions are subject to HMRC’s ‘wholly and exclusively’ rules for corporation tax purposes.
Carry forward can only be used once the annual allowance in the current tax year has been used up. It’s then possible to make use of any unused annual allowance from the previous three tax years, with the earliest of the three tax years being used first.
In calculating the amount of annual allowance used up for the current and previous three tax years, it’s necessary to know the total pension input amount (the total of the benefit accrual and contributions paid) for each tax year.
Although the standard annual allowance was £40,000 between 2014/15 and 2022/23, and is £60,000 for 2023/24, if an individual is subject to the money purchase annual allowance (MPAA) and/or the tapered annual allowance (TAA), the amount or even availability of carry forward may be affected. See ‘Interacting with the money purchase annual allowance' and ‘Interacting with the tapered annual allowance' below for more information.
The amount available to carry forward to the current tax year will, of course, have to take into account any unused annual allowance already used in any earlier carry forward exercise.
Example calculations
The table below lists the pension input amounts for four different scenarios and shows how much annual allowance can be carried forward into the 2023/24 tax year, assuming that neither a MPAA nor a TAA applies (see below for more information on each of these):
2020/21 pension input amount |
2021/22 pension input amount |
2022/23 pension input amount |
Total carry forward |
Maximum pension input in 2023/24 |
|---|---|---|---|---|
£30,000 |
£30,000 |
£20,000 |
£40,000 |
£100,000 |
£40,000 |
£20,000 |
£40,000 |
£20,000 |
£80,000 |
£20,000 |
£50,000 |
£50,000 |
Nil1 |
£60,000 |
£40,000 |
£60,0002 |
£10,000 |
£30,000 |
£90,000 |
1This assumes that there was no unused annual allowance in the tax years before 2020/21 which could be carried forward into 2021/22 and 2022/23. The unused annual allowance for 2020/21 has therefore been carried forward into the subsequent two tax years meaning there is no unused annual allowance to carry forward into 2023/24 from any of the previous three tax years.
2There would have been an annual allowance tax charge here unless the member had unused annual allowance to carry forward from 2018/19 and/or 2019/20.
Since 6 April 2015, a reduced annual allowance has applied to money purchase pension contributions for anyone who flexibly accesses their pension benefits. HMRC introduced the MPAA to ensure there are no potential recycling issues with individuals claiming further tax relief on new contributions made, having just taken their pension benefits under the pension flexibility rules.
The MPAA only applies to money purchase contributions rather than to all pension contributions being made. So, it will still be possible for an individual to accrue benefits in a defined benefits scheme up to the current overall annual allowance of £60,000 but taking into account any money purchase contributions counted against the MPAA. If the money purchase contributions exceed the MPAA then an alternative annual allowance (plus any carry forward) will apply to any defined benefits accrual.
It’s not possible to use carry forward in conjunction with the MPAA limit. Any unused annual allowance from the previous three tax years can’t be carried forward to allow for a higher money purchase contribution in the current tax year. The unused allowance could, however, be used to cover a large benefit accrual in a defined benefits scheme. You can find out more about the MPAA in the Money Purchase Annual Allowance section of this guide.
Since 6 April 2016 there has been a reduced annual allowance for those with high earnings.
Tax years 2020/21 to 2022/23
The taper worked by operating a £1 reduction in the annual allowance for every £2 of adjusted income above £240,000, subject to a minimum annual allowance of £4,000. So, those with an adjusted income of £312,000 or more in a tax year will have a £4,000 annual allowance for that tax year.
However, if an individual’s ‘threshold income’ is no more than £200,000 they will not be subject to the tapered annual allowance.
Tax year 2023/24
The taper now works by operating a £1 reduction in the annual allowance for every £2 of adjusted income above £260,000, subject to a minimum annual allowance of £10,000. So, those with an adjusted income of £360,000 or more in a tax year will have a £10,000 annual allowance for that tax year. However, if an individual’s ‘threshold income’ is no more than £200,000 they will not be subject to the tapered annual allowance.
You can find out more about how tapering works in the Tapered Annual Allowance section of this guide.
It is possible to use carry forward where the tapered annual allowance applies in the current tax year. Where the annual allowance has been reduced in a carry forward year as a result of the taper provisions, then the carry forward available will be based on the tapered annual allowance amount. For example, if 2019/20 is a carry forward year and £7,000 of contributions were made when a £10,000 tapered annual allowance applied, then there will be £3,000 of unused annual allowance to carry forward. Here is an example to demonstrate how this works.
Tax year |
Standard annual allowance |
TAA |
Pension input amount |
Cumulative carry forward available to use in the next tax year |
|---|---|---|---|---|
2020/21 |
£40,000 |
£15,000 |
£14,000 |
£1,000 |
2021/22 |
£40,000 |
£15,000 |
£10,000 |
£6,000 |
2022/23 |
£40,000 |
£10,000 |
£12,000 |
£4,000 |
2023/24 |
£60,000 |
£10,000 |
£14,000 |
Nil |
This member has £14,000 to use in the 2023/24 tax year made up of £10,000 TAA and £4,000 carry forward. This example assumes that the MPAA doesn’t apply, and that the member doesn’t have carry forward available from tax years not shown.
It’s possible to carry forward any unused annual allowance automatically. There’s no requirement to make a claim to HMRC to carry forward any unused allowance and there’s no need for the details to be included on a self-assessment tax return if there’s no annual allowance charge due.
You can find HMRC’s guidance on carry forward at:
HMRC have an annual allowance calculator, which you can access at:
Take care when entering information into the calculator and make sure you fully understand the output before taking any action on it.