Carry forward

Special rules apply to the pension input amounts ending in the 2015/16 tax year, more information can be found in our article Carry forward in the 2015/16 transitional year.

How it 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 that the current annual allowance is used up.
2. Calculate the pension input amounts (PIA) for the three carry forward years.
3. Subtract the PIA for the earliest carry forward year (2015/16). Subtract the PIA in the post-alignment PIP (9 July 2015 - 5 April 2016) from the post-alignment annual allowance. If the result is negative*, this carries forward to the next year as zero.
4. Subtract the PIA for the second carry forward year (2016/17) from the annual allowance of £40,000. The answer is the amount that can be carried forward for that year. If this is a negative number, treat it as zero.
5. Repeat the same process for the third carry forward year (2017/18).

The answer is the maximum amount that can be carried forward to the current PIP.

*If the result is negative, the member would 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

The 8 July 2015 Budget aligned PIPs with tax years, this applies to all pension schemes.

For the purposes of the annual allowance, 2015/16 has been split into two mini tax years, the pre-alignment tax year and the post-alignment tax year.

The annual allowance for PIPs ending in the pre-alignment period was £80,000 and £0 for the post-alignment period. Any unused annual allowance from the pre-alignment PIP can be used in the post-alignment PIP, capped at a maximum of £40,000.

Only unused annual allowance from the post-alignment period can be carried forward.

For more information see our article Carry forward in the 2015-16 transitional year.

Money Purchase Annual Allowance (MPAA)

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

The annual allowance will be reduced for people who have ‘adjusted income’ over £150,000 a year. The annual allowance reduces by £1 for every £2 over £150,000. The maximum reduction is £30,000.

The reduction doesn't apply to someone who has a ‘threshold income’ of no more than £110,000.

For more information, see our article Tapering of annual allowance for high incomes - adjusted and threshold incomes and 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.