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EXCEEDING YOUR TAPERED
ANNUAL PENSION 
ALLOWANCE

 

If You Exceed Your Tapered Annual Pension Allowance in a Given Tax Year, You May Be Able To Take Advantage of the Pension Carry Forward Rules, or You May Incur a Tax Charge

 


PENSION CARRY FORWARD

If you exceed your annual allowance in the current year, you can carry forward any unused annual allowance from the past three tax years, starting with the earliest year first.

 

The earnings thresholds and minimum tapered annual allowance have changed and so it is important to take this into account when calculating what unused allowance you might have. This is where good record keeping is so important.

 

How the allowances have changed over the past 4 years

Tax Year
Annual Allowance
Taper Start
Taper End
Minimum Tapered Allowance
2024/25
£60,000
£260,000
£360,000
£10,000
2023/24
£60,000
£260,000
£360,000
£10,000
2022/23
£40,000
£240,000
£312,000
£4,000
2021/22
£40,000
£240,000
£312,000
£4,000

 

Example

 

Anna has consistently earned £250,000 p.a. over the last 4 years. She has no other income at all. She also gets a £20,000 p.a. contribution into her pension from her employer.

 

This means that her adjusted income has consistently been £270,000. Her tapered annual allowance and carry forward allowances are illustrated in the table below:

Tax Year
Tapered Annual Allowance
Pension Payments Made
Remaining Allowance
2024/25
£55,000
£20,000
£35,000
2023/24
£55,000
£20,000
£35,000
2022/23
£25,000
£20,000
£5,000
2021/22
£25,000
£20,000
£5,000

 

This means that if Anna wished to make a personal contribution into her pension over and above what her employer is paying in, she could pay in an extra £80,000 in the 2024/25 tax year and receive tax relief at her highest marginal rate, which in her case is 45%.


IF NO CARRY FORWARD IS AVAILABLE

If you’ve exceeded your annual allowance for the current tax year, and all of your available carry forward allowances from the previous three years, you will need to declare this on your self-assessment tax return and suffer a tax charge.

 

You will pay tax on the excess at your marginal tax rate, which is likely to be at 45% for most people exceeding the annual allowance. It may be possible for this tax charge to be deducted from your pension savings under the 'scheme pays' rules. Deadlines and restrictions apply to this so if you think you might have a tax charge to pay, you should liaise with your pension scheme and professional advisers as early as possible.

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