Pension carry forward
Pay in more than £40,000 by carrying forward unused annual allowance
Pension carry forward lets you potentially pay more than your annual allowance into your pension. You can do this by carrying forward unused allowance from the three previous tax years to make contributions this year.
What is pension carry forward?
Pension carry forward rules let you pay in more than your £40,000 annual allowance and still get tax relief (if you have enough earnings in the current tax year). You do this by carrying forward any unused annual allowance from the last three tax years.
To use carry forward you need to have had a SIPP or other type of pension in place in each of the three years. But you don’t need to have made any contributions and your new contribution does not need to be paid into the same pension.
Carry forward if you earn more than £150,000
Carry forward can be useful for higher earners affected by the tapered annual allowance introduced in April 2016. Anyone with income of more than £150,000 a year now has their annual allowance reduced to as little as £10,000. But with carry forward they could contribute up to £120,000 extra in 2018/19 and still benefit from the Government’s tax relief.
Interested in carry forward?
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How does it work in practice?
As an example of pension carry forward we can look at Mr Smith. He is a fictional investor in his 40s with a current salary of £170,000. He has made several pension contributions over the last few years:
| Tax year | Pension contribution | Unused allowance |
|---|---|---|
| 2015/16 | £20,000 | £20,000 |
| 2016/17 | £10,000 | £30,000 |
| 2017/18 | £20,000 | £20,000 |
| 2018/19 | None so far | £30,000 (tapered annual allowance) |
| Total | £50,000 | £100,000 |
Mr Smith can carry forward £70,000 of unused allowance from the past three tax years. If he uses his full £30,000 tapered annual allowance for 2018/19, he could contribute £100,000 this year and still receive tax relief.
Pension carry forward rules can be complex, especially when it comes to tax relief. You should speak to a financial planner if you are interested in pension carry forward.
SIPPs are not suitable for everyone. They may not be right for you if you don’t want to invest across different asset classes or don’t think you will make use of the investment choices available to you. Please contact us for guidance or advice if you are unsure.
