If you go over your annual allowance limit, you’ll normally have to pay tax on the excess – but in some cases you can carry forward any unused annual allowance from the previous 3 tax years, which may reduce the tax charge.
To carry forward, contributions must exceed your annual allowance in the current tax year (the standard annual allowance is currently £60,000). You’re then permitted to use any unused tax relief from the preceding 3 tax years, starting with the tax year 3 years ago. Please note, if the government changes the level of the annual allowance (like they did from 6 April 2023), any carry forward is capped at the level of the annual allowance for that year. The allowance for 2022/23 was £40,000, this means, for example, that any unused tax relief you wanted to carry forward from the 2022/23 tax year would be capped at £40,000.
You’ll need to meet 3 conditions to carry forward:
- You must earn at least the amount you wish to contribute in total in the current tax year (unless your employer is making the contribution). For example, if your earnings are £50,000 – you can only contribute up to £50,000 and get tax relief on this.
- You must have been a member of a UK-registered pension scheme (this does not include the state pension) in each of the tax years from which you wish to carry forward.
- You haven’t triggered the money purchase annual allowance (MPAA) – ie, you have not started taking your money from a flexi-access drawdown account, and you have not taken a flexible lump sum (described by HMRC as an ‘uncrystallised funds pension lump sum’).
Your contributions may also be restricted if you’re affected by the Tapered Annual Allowance or Money Purchase Annual Allowance. For more information, visit the MoneyHelper website.
You can use the pension annual allowance calculator on the government’s website to see how much you can carry forward, or check if you have an annual allowance tax charge.