Carry forward

How carry forward works in practice

There are a number of steps that need to be followed to work out the maximum amount that can be carried forward.

1. Make sure the current annual allowance is used up. Remember contributions made by an individual need to be supported by relevant UK earnings, employer contributions do not.
2. Calculate the pension input amounts for the three carry forward years.
3. Subtract the pension input amounts for the earliest carry forward year (2019/20). Subtract the pension input amounts from the annual allowance the answer is the amount that can be carried forward for that year. If the result is negative*, this carries forward to the next year as zero.
4. Repeat the same process for the second carry forward year (2020/21). 
5. Repeat the same process for the third carry forward year (2021/22).

The answer is the maximum amount that can be carried forward to the current pension input period.

*If the result is negative, the individual will either have used carry forward or been liable for the annual allowance charge in that year.

For more information, see:

• Transitional rules for DC schemes (pre 6 April 2016)
• Transitional rules for DB schemes (pre 6 April 2016)
• Our case studies to find out how carry forward works in practice
• Carry forward in the 2015-16 transitional year

Money purchase annual allowance 

It's not possible to carry forward unused annual allowance against the money purchase annual allowance. Money purchase contributions must be limited to £4,000 to avoid a money purchase annual allowance tax charge.

However, it's possible to carry forward unused annual allowance against the full annual allowance if it still applies to a defined benefit plan. For more information, see An explanation of the money purchase annual allowance (MPAA).

Tapered annual allowance

Since 6 April 2016, individuals who have 'adjusted income' for a tax year of greater than £150,000 up to 5 April 2020 and £240,000 from 6 April 2020 have their annual allowance for that tax year restricted.

From 6 April 2020 - Individuals who have taxable income for a tax year of greater than £240,000 will have their annual allowance for that tax year restricted. It will be reduced, so that for every £2 of income they have over £240,000, their annual allowance is reduced by £1. Any resulting reduced annual allowance is rounded down to the nearest whole pound.

The maximum reduction is £36,000, so anyone with income of £312,000 or more will have an annual allowance of £4,000. Individuals with high income caught by the restriction may have to reduce the contributions paid by them and/or their employers or suffer an annual allowance charge.

From 6 April 2016 to 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. 

For more information, see our article Tapering of annual allowance for high incomes - adjusted and threshold incomes and HMRC Pensions Tax Manual - PTM057100: Annual allowance: tapered annual allowance

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.