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Carry forward

Published  13 October 2023
   5 min read

Carry forward allows unused annual allowance from pension input periods ending in the three previous tax years to be carried forward and added to the annual allowance for the current pension input period.

Key facts

  • On 6 April 2023 the annual allowance increased from £40,000 to £60,000 and the money purchase annual allowance and taper increased from £4,000 to £10,000.
  • You must use up the annual allowance in the current pension input period first, then go back to the earliest of the three carry forward years available.
  • You must have been in a pension arrangement in an earlier year to have unused annual allowance to carry forward, although you don't have to have contributed.
  • You can still use carry forward if the tapered annual allowance applies.
  • If the money purchase annual allowance applies you cannot carry forward unused annual allowance to a money purchase plan.

How carry forward works in practice

An individual must have been a member of the registered pension scheme in the previous three tax years in order to carry forward unused annual allowance from one or more of these tax years. A member includes either:

  • an active member
  • a pensioner member
  • a deferred member
  • a pension credit member of a pension scheme.

HMRC Pensions Tax Manual - PTM055100: When members can carry forward unused annual allowance (opens in a new window)

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, or a third party, 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 (2020/21). 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 (2021/22). 
  5. Repeat the same process for the third carry forward year (2022/23).

The total of these figures 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.

Our Carry forward calculations article provides a good process to follow to work out the carry forward available to an individual.

For more information, see:


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 £10,000 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

The earnings thresholds and minimum tapered annual allowance have changed over time.  It is essential that when checking the taper that applies in a specific year the correct basis is used.

6 April 2016 and 5 April 2020

Between these dates individuals who had taxable income over £150,000 had their annual allowance for that tax year 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. 

6 April 2020 and 5 April 2023

Between these dates individuals who had taxable income over £240,000 had their annual allowance for that tax year restricted. It was reduced, so that for every £2 of income they have over £240,000, their annual allowance was reduced by £1. The maximum reduction is £36,000, so anyone with an income of £312,000 or more had an annual allowance of £4,000. 

From 6 April 2023

From 6 April 2023 individuals who have taxable income over £260,000 have their annual allowance restricted. It is reduced, so that for every £2 of income they had over £260,000 their annual allowance is reduced by £1. The maximum reduction is £50,000, so anyone with income of £360,000 or more has an annual allowance of £10,000. 

Disclaimer

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.