What is carry forward?

Carry forward is a method where an individual can increase their pension contributions in line with the individual's annual allowance by using the unused annual allowance from the previous three tax years. First introduced for tax years 2011/12 onwards which coincided with the first reduction in the annual allowance.

When is carry forward used?

Once a client has used up their annual allowance for the current tax year, they can carry forward any unused annual allowance from the three immediately previous tax years to the current tax year, starting with the earliest year. However, carry forward is only available provided the client was a member (active, deferred, pensioner or pension credit member) of an HMRC registered pension scheme in the relevant tax year.

Tax relief on personal and employer contributions is only available for the tax year/employer’s accounting year in which the contributions are paid and for personal contributions is limited to 100% of the client’s relevant UK earnings for that tax year.

The annual allowance reduced to £40,000 on 6 April 2014 and the carry forward limit for unused allowances arising in tax years from 2014/15 also reduced to £40,000 pa. In 2023/24 the carry forward limit that will apply is:

Tax Year Annual allowance
2020/21 £40,000 pa
2021/22 £40,000 pa
2022/23 £40,000 pa
2023/24 £60,000 pa

What happens if the tapered annual allowance applies?

The Tapered Annual Allowance was introduced in the 2016/17 tax year, so the client's threshold and adjusted incomes for that tax year will also be needed to determine the amount of unused allowance available to carry forward from each relevant tax year.

This reduces a pension scheme member's annual allowance on a sliding scale for a tax year in which their 'adjusted income' exceeds £260,000 in a tax year. Member's with an adjusted income of £360,000 or more in the tax year 2023/24 will have a tapered annual allowance of £10,000 gross. This allowance will not apply if a member's 'threshold income' is £200,000 or less even if they had adjusted income of £260,000 or more. The allowance was different for earlier tax years from 2016/17.

Please note: If you are subject to the Money Purchase Annual Allowance (MPAA) as a result of drawing retirement income or taking Uncrystallised Funds Pension Lump Sum (UFPLS), there is no carry forward available at all for money purchase pension schemes, even if in the three previous years you were not subject to the MPAA.

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