In this guide

This guide is for financial advisers only.  It mustn't be distributed to, or relied on by, customers.  It is based on our understanding of legislation as at January 2024.

Overview

All examples assume the following:

  • The money purchase annual allowance doesn’t apply, and
  • There’s been no benefit accrual or contributions paid under any other registered pension schemes during the period covered.

For further information see the Carry Forward and Tapered Annual Allowance sections of this guide

Liam made a large contribution to his personal pension plan in tax year 2020/21, carrying forward some unused annual allowance from the 2019/20 tax year. It’s now tax year 2023/24 and he wants to know how much unused annual allowance he can carry forward because he’s planning on making another large personal contribution. The TAA doesn’t apply to him. The table below shows his pension input amounts for the pension input periods ending in the previous four tax years and assumes there is no carry forward from any earlier tax years:

PIP ending in tax year

Annual allowance

Pension input amount

Available to carry forward from current PIP

Total amount to carry forward to next tax year

2019/20 

£40,000 

£7,000 

£33,000 

£33,000 

2020/21 

£40,000 

£70,000 (Uses £30,000 CF from 2019/20) 

Nil 

£3,000 

2021/22 

£40,000 

£25,000 

£15,000 

£18,000 

2022/23

£40,000 

£45,000 (Uses remaining £3,000 CF from 2020/21 and £2,000 of the CF allowance from tax year 2021/22) 

Nil

£13,000

Liam can contribute up to £73,000 in tax year 2023/24 (£60,000 standard annual allowance for 2023/24 and £13,000 carried forward from 2021/22) without being subject to an annual allowance tax charge.

Unused annual allowance can only be carried forward from a year in which an individual was a member of a registered pension scheme. If Liam hadn’t joined a scheme until 2020/21 and the exact same contributions were made as above in tax years 2020/21, 2021/22 and 2022/23., this would produce the following figures:

PIP ending in tax year

Annual allowance

Pension input amount

Available to carry forward from current PIP

Total amount available to carry forward to next tax year

2020/21 

£40,000 

£70,000 (An annual allowance tax charge would be due on any contribution over £40,000). 

Nil 

Nil 

2021/22 

£40,000 

£25,000 

£15,000 

£15,000 

2022/23 

£40,000 

£45,000 (Uses £5,000 CF from 2021/22) 

Nil 

£10,000 

In this situation, Liam can contribute up to £70,000 in tax year 2023/24 (£60,000 standard annual allowance for 2023/24 and £10,000 carried forward from 2021/22) without being subject to an annual allowance tax charge.

Lucy has been subject to the TAA since 2016/17, at varying amounts. Her current TAA is £10,000. She wants to know whether she has any unused annual allowance available to use in 2023/24 to maximise her contribution. She has already paid £10,000 in 2023/24.

PIP ending in tax year:

TAA

Pension input amount

Available to carry forward

Total amount available to carry forward to next tax year

2020/21 

£17,500 

£17,500 

Nil 

Nil 

2021/22 

£15,000 

£10,000 

£5,000 

£5,000 

2022/23 

£12,000 

£12,000 

Nil 

£5,000 

Lucy can carry forward £5,000 from 2021/22, so she can contribute an extra £5,000, giving an allowance of £15,000 that can be paid in 2023/24 without attracting an annual allowance tax charge.

In tax year 2023/24, Barry’s employer wishes to pay in a large single contribution of £70,000 into his pension plan. A monthly employer contribution of £340 is also being paid on the 1st of each month and has been for a few years. They also paid in a lump sum of £40,000 in tax year 2020/21 and £45,000 in 2022/23.  The table below assumes there is no carry forward allowance from any years before 2019/20.

PIP ending in tax year:

Annual allowance

Pension input amount

Available to carry forward

Total amount available to carry forward to next tax year

2019/20 

£40,000 

£4,080 

£35,920 

£35,920 

2020/21 

£40,000 

£44,080 (Uses £4,080 CF from 2019/20) 

Nil 

£31,840 

2021/22 

£40,000 

£4,080 

£35,920 

£67,760 

2022/23 

£40,000 

£49,080 (Uses £9,080 CF from 2019/20) 

  Nil

£35,920 (the CF remaining from 2019/20 drops away) 

The total pension input amount for 2023/24 would be £74,080 (the £70,000 single contribution plus £4,080 in respect of the regular contributions). Barry will have more than enough annual allowance to cover this due to the carry forward of £35,920 along with the £60,000 annual allowance for 2023/24.

 

Oliver is a member of his employer’s GPP scheme, and he and his employer pay 5% each into the scheme. The TAA has applied to him since 2022/23 when he got a promotion.

For 2022/23, his salary was £260,000 so the total pension contribution was £26,000. His only other income for that tax year was £1,000 in interest from his bank accounts. This means his adjusted income was £274,000 (£260,000 salary + £1,000 interest + £13,000 employer contribution). His threshold income was £248,000 (£260,000 salary + £1,000 interest - £13,000 personal contribution). An adjusted income of £274,000 means his annual allowance was tapered to £23,000.

He wants to know how the TAA will affect him and whether he’ll be able to carry forward any unused annual allowance from previous tax years to allow contributions of 10% to continue, without incurring an annual allowance charge.

PIP ending in tax year

Annual Allowance/TAA

Pension input amount

Available to carry forward

Total amount available to carry forward to next tax year

2019/20 

£40,000 

£6,000 

£34,000 

£34,000 

2020/21 

£40,000 

£10,500 

£29,500 

£63,500 

2021/22 

£40,000 

£12,000 

£28,000 

£91,500  

2022/23 

£23,000 

£26,000 (Uses £3,000 CF from 2019/20) 

 

Nil 

£57,500 (the CF remaining from 2019/20 drops away) 

For 2023/24, the tapered annual allowance applies to individuals with an adjusted income of over £260,000. Oliver’s salary will be £280,000 which would make the prospective total pension contribution £28,000. He estimates his bank interest will be £1,400 for 2023/24 which will make his adjusted income £295,400 (£280,000 salary + £1,400 interest + £14,000 employer contribution). His threshold income will be £267,400 (£280,000 salary + £1,400 interest - £14,000 personal contribution). An adjusted income of £295,400 means his annual allowance will be tapered to £42,300

Oliver’s annual allowance in 2023/24 will be £99,800 (£42,300 tapered annual allowance + £57,500 carried forward). This is more than enough to cover the £28,000 contribution.