CARRY FORWARD ANNUAL ALLOWANCE EXPLAINED
2023/2024 TAX YEAR
For those clients who can pay pension contributions above their annual allowance (including those paid by their employer), carry forward is an integral part of tax year end planning. The rules are:
- any unused annual allowance (standard or tapered) from each of the last 3 tax years is carried forward and added to the current tax year’s allowance
- carry forward from a particular tax year is only available if the client was a member of a registered pension scheme in that year
- the current year’s allowance is used first, then any unused allowance of the earliest available carry forward year is used, then the next earliest year and so on
- no formal application is required, but if the annual allowance plus carry forward is exceeded, it is your clients responsibility to report the excess to HMRC
- earnings are not carried forward, so a scheme member still needs relevant UK earnings to justify personal contributions. Employer contributions, however, are not limited by earnings.
Please be aware that your clients have until tax year end on 5th April to use their 2020-2021 allowances.
Carry Forward example:
|Tax year||annual allowance||regular contributions (gross)||unused annual allowance||gross additional contribution||remaining annual allowance|
|Total of additional contribution *||£70,000||£20,000|
*Assumes the tapered or money purchase annual allowances do not apply.