Carry forward - worked examples

These examples are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of legislation at the date of publication.

Jack has just been made redundant and has a £200,000 redundancy payment. His salary for the 2015/16 tax year up to the point of being made redundant is £85,000. He wants to use as much of his redundancy payment as possible to top up his SIPP in the current 2015/16 tax year. His pension input amounts are shown in the table below, along with the annual allowance for each tax year. The last column in the table shows how much Jack can carry forward into mini tax-year 2 (MTY2). See our article here for more information about how PIPs changed in 2015.

PIP ends in tax year Annual allowance Pension input amount Available to carry forward Total amount available to carry forward
2012/13 £50,000 £12,000 £38,000 £38,000
2013/14 £50,000 £18,000 £32,000 £70,000
2014/15 £40,000 £24,000 £16,000 £86,000
2015/16 MTY1 £80,000 £6,000 £40,000 to MTY2 only
2015/16 MTY2 £40,000 carried forward from MTY1 £12,000 £28,000

The total annual allowance available for carry forward is £86,000. When added to the remaining annual allowance for mini tax year 2 in 2015/16, Jack can pay a gross personal contribution of up to £114,000 (£86,000 + £28,000). This means he can use up to £91,200 of his redundancy payment to make a gross pension contribution of up to £114,000 to his SIPP without attracting an annual allowance charge.

Note – Jack has to have enough relevant UK earnings to support the large contribution. In this case, he does i.e. £85,000 + £170,000 redundancy payment (the first £30,000 of the redundancy payment is tax free, so doesn’t count as relevant UK earnings)

This example assumes that:

  • Jack’s pension input period runs in line with tax years,
  • 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.

Meg is a member of her employer’s defined benefit scheme, and wants to know how much she can contribute to a new personal pension plan in the 2015/16 tax year without incurring an annual allowance tax charge. She will earn £145,000 in 2015/16, and contributes 10% of earnings to the defined benefit scheme. The scheme has provided details of the pension input amounts for the pension input periods ending in the relevant tax years. The calculation is as follows:

PIP ends in tax year Annual allowance Pension input amount Available to carry forward Total amount available to carry forward
2012/13 £50,000 £26,500 £23,500 £23,500
2013/14 £50,000 £28,000 £22,000 £45,500
2014/15 £40,000 £42,000* Nil £45,500
2015/16 MTY1 £80,000 £10,625 £40,000 to MTY2 only
2015/16 MTY2 £40,000 carried forward from MTY1 £31,875 £8,125

*The excess £2,000 is covered by annual allowance carried forward from 2011/12.

So, in the 2015/16 tax year, there’s £8,125 annual allowance remaining which has to be used up, before any unused allowance can be carried forward from the previous three tax years. The maximum that Meg can contribute to a personal pension plan before an annual allowance charge would be due is £8,125 + £45,500 = £53,625.

You also have to check that Meg’s personal contribution is supported by her earnings. Her contribution to the defined benefits scheme is 10% of her earnings = £14,500.

She can contribute up to 100% of her relevant UK earnings and receive tax relief, so the maximum tax relievable personal contribution she can make in 2015/16 will be £145,000 - £14,500 = £130,500 (gross).

This is more than the amount available for carry forward, so that means she can mop up all the unused allowance in the current tax year.

This example assumes that:

  • Meg’s pension input period runs in line with tax years,
  • 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.

Oliver is a member of his employer’s GPP scheme, and both he and his employer pay 10% into the scheme. He’ll earn £160,000 in 2016/17 and wants to know how the tapered annual allowance will affect him. He also needs to know if he’ll be able to carry forward any unused annual allowance from 2013/14, 2014/15 and 2015/16 to allow him to continue to contribute 10% without incurring an annual allowance charge, if a taper applies. Oliver confirms that his adjusted income is £176,000 and his threshold income is £144,000.

Oliver will be affected by the tapered annual allowance. His adjusted income is £26,000 over the £150,000 limit, so his annual allowance will be reduced by £13,000. His 2016/17 tapered annual allowance will be £27,000.

The total contribution made by Oliver and his employer will be £32,000, so he will incur an annual allowance charge on £5,000 unless he can carry forward some unused annual allowance from any of the previous three years. His pension provider gives him the following information about the pension input amounts for the pension input periods ending in the previous three years:

PIP ends in tax year Annual allowance Pension input amount Available to carry forward Total amount available to carry forward
2013/14 £50,000 £29,000 £21,000 £21,000
2014/15 £40,000 £30,000 £10,000 £31,000
2015/16 MTY1 £80,000 £7,750 £40,000 to MTY2 only
2015/16 MTY2 £40,000 carried forward from MTY1 £23,250 £16,750 £47,750

Oliver and his employer can continue to pay 10% of his salary into the GPP in 2016/17, because he has ample unused annual allowance available to carry forward. The £32,000 total gross contribution will be split as £27,000 for his tapered annual allowance for 2016/17 and £5,000 carry forward from 2013/14.

This example assumes that:

  • Oliver’s pension input period runs in line with tax years,
  • 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.

Sophia made a large contribution to her personal pension plan on 15 April 2015, and wants to know how much unused annual allowance she can carry forward into the 2016/17 tax year, because she’s planning on making another large contribution. The table below shows her pension input amounts for the pension input periods ending in the previous three tax years:

PIP ends in tax year Annual allowance Pension input amount Available to carry forward Total amount available to carry forward
2013/14 £50,000 £20,000 £30,000 £30,000
2014/15 £40,000 £30,000 £10,000 £40,000
2015/16 MTY1 £80,000 £75,000 £5,000 to MTY2 only
2015/16 MTY2 £5,000 carried forward from MTY1 £5,000 £0 £70,000

Sophia still has £70,000 available to carry forward from 2013/14 and 2014/15. She could pay a large personal contribution in 2016/17 of up to £110,000 (£70,000 carried forward + £40,000 annual allowance for 2016/17), assuming:

  • she has enough relevant UK earnings to support such a contribution,
  • she isn’t subject to either the tapered annual allowance or the money purchase annual allowance, and
  • there’s been no benefit accrual or contributions paid under any other registered pension schemes during the period covered.

Liam made a large contribution to his personal pension plan in June 2015, carrying forward some unused annual allowance from the 2013/14 tax year. He wants to know how much unused annual allowance he can carry forward into the 2016/17 tax year, because he’s planning on making another large personal contribution. The table below shows his pension input amounts for the pension input periods ending in the previous four tax years:

PIP ends in tax year Annual allowance Pension input amount Available to carry forward Total amount available to carry forward
2012/13 £50,000 £50,000 £0 £0
2013/14 £50,000 £20,000 £30,000 £30,000
2014/15 £40,000 £20,000 £20,000 £50,000
2015/16 MTY1 £80,000 £100,000* £0 to MTY2 £30,000
2015/16 MTY2 £0 £5,000 £0 £25,000

*Liam used £20,000 of the unused annual allowance from tax year 2013/14 to cover the contribution in mini tax year 1, so no annual allowance charge was incurred. This reduced the cumulative carry forward amount to £30,000.

He then used up another £5,000 of the unused annual allowance available for carry forward in mini tax year 2.

This means he has £25,000 unused annual allowance available for carry forward into 2016/17. When added to the £40,000 annual allowance for 2016/17, this means he’ll be able to contribute up to £65,000 gross to his pension, without incurring an annual allowance tax charge. This example assumes:

  • Liam has enough relevant UK earnings to support such a contribution,
  • he isn’t subject to either the tapered annual allowance or the money purchase annual allowance, and
  • there’s been no benefit accrual or contributions paid under any other registered pension schemes during the period covered.

Stella will be subject to a tapered annual allowance of £25,000 in 2016/17 and £17,000 in 2017/18. The table below shows her pension input amount for the last few years, and demonstrates how much she can carry forward into 2017/18 to minimise the effects of the taper:

PIP ends in tax year Annual allowance Tapered annual allowance Pension input amount Amount available for carry forward
2014/15 £40,000 N/A £40,000 £0
2015/16 MTY1 £80,000 N/A £25,000 £40,000 to MTY2 only
2015/16 MTY2 £40,000 carried forward from MTY1 N/A £35,000 £5,000
2016/17 £40,000 £25,000 £23,000 £2,000
2017/18 £40,000 £17,000 Up to £24,000

Stella can carry forward £5,000 from 2015/16 and £2,000 from 2016/17, so she could contribute up to £24,000 in 2017/18 without suffering an annual allowance tax charge.

This example assumes that:

  • Stella’s pension input period runs in line with tax years,
  • 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.

It’s June 2019 and Luca is subject to a tapered annual allowance. He wants to know whether he has any unused annual allowance available to carry forward to the 2019/20 tax year, to maximise his contribution.

PIP ends in tax year Tapered annual allowance Pension input amount Amount available for carry forward
2016/17 £17,500 £17,500 £0
2017/18 £15,000 £10,000 £5,000
2018/19 £12,000 £12,000 £0
2019/20 £10,000 Up to £15,000

Luca can carry forward £5,000 from 2017/18, so he could contribute £15,000 without attracting an annual allowance tax charge.

This example assumes that:

  • Luca’s pension input period runs in line with tax years,
  • 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.

Pensions Technical Services