Pension Tax UK 2026/27 — Relief, Annual Allowance, Tax-Free Cash and DrawdownPension Carry Forward Guide UK 2026 — Use Unused Allowance
Complete guide to pension carry forward. Use up to 3 years of unused annual allowance for larger contributions and bigger tax relief.
Pension carry forward is a powerful but underused tax relief. If you have spare cash and unused allowance, you could save significant tax.
How Carry Forward Works
The Basic Rule
| Principle | Detail |
|---|
| Annual Allowance | £60,000 (2024/25 onwards) |
| Unused allowance | Can be carried forward |
| Carry forward period | 3 previous tax years |
| Order of use | Current year first, then oldest year |
Example
| Tax Year | Allowance | Used | Unused |
|---|
| 2023/24 | £60,000 | £10,000 | £50,000 |
| 2024/25 | £60,000 | £15,000 | £45,000 |
| 2025/26 | £60,000 | £20,000 | £40,000 |
| 2026/27 | £60,000 | Current year | £60,000 |
| Available 2026/27 | | | £195,000 |
Who Can Use Carry Forward?
Requirements
| Condition | Detail |
|---|
| Must have been in a pension scheme | In years you’re carrying from |
| Must have relevant UK earnings | In year of contribution |
| Contribution can’t exceed earnings | In the year you contribute |
“In a Pension Scheme”
| Counted As Being In a Scheme | |
|---|
| Workplace pension (auto-enrolment) | Yes |
| SIPP/personal pension | Yes |
| Frozen/dormant pension | Yes (if open) |
| Only State Pension | No |
Even a workplace pension with £0 contributions counts.
Carry Forward Calculator
Step-by-Step
| Step | Action |
|---|
| 1 | Find your pension contributions for each of last 3 years |
| 2 | Calculate unused allowance each year |
| 3 | Add up available carry forward |
| 4 | Add current year allowance |
| 5 | Cap at your earnings |
Example: High Earner Making Large Contribution
| Tax Year | Annual Allowance | Total Contributions | Unused |
|---|
| 2023/24 | £60,000 | £8,000 | £52,000 |
| 2024/25 | £60,000 | £8,000 | £52,000 |
| 2025/26 | £60,000 | £8,000 | £52,000 |
| 2026/27 (current) | £60,000 | - | £60,000 |
| Total available | | | £216,000 |
If earnings are £150,000, can contribute up to £150,000.
Tax Relief on £100,000 Contribution
| Tax Rate | Relief Claimed | Effective Cost |
|---|
| Basic (20%) | £20,000 | £80,000 |
| Higher (40%) | £40,000 | £60,000 |
| Additional (45%) | £45,000 | £55,000 |
Annual Allowance History
Previous Years’ Allowances
| Tax Year | Standard AA | Notes |
|---|
| 2023/24 | £60,000 | Increased from £40k |
| 2024/25 | £60,000 | |
| 2025/26 | £60,000 | |
| 2026/27 | £60,000 | |
If You Had Tapered Allowance
| If Adjusted Income Over | Your Allowance Was |
|---|
| £260,000+ (2023/24 on) | Reduced by £1 per £2 over £260k |
| Minimum | £10,000 |
Your carry forward is based on YOUR allowance, which may have been tapered.
Tapered Annual Allowance
Who Is Affected
| Income Test | Threshold |
|---|
| Threshold income | Over £200,000 |
| AND Adjusted income | Over £260,000 |
| Taper | £1 reduction per £2 over £260k |
| Minimum allowance | £10,000 (at £360,000+) |
Adjusted Income Calculation
| Item | Include |
|---|
| Taxable income | All sources |
| PLUS employer pension contributions | Added back |
| PLUS salary sacrifice | Added back |
| = Adjusted income | For taper test |
Example: Tapered Allowance
| Detail | Amount |
|---|
| Salary | £250,000 |
| Employer pension | £30,000 |
| Adjusted income | £280,000 |
| Over £260,000 by | £20,000 |
| Taper (£1 per £2) | £10,000 reduction |
| Your Annual Allowance | £50,000 |
Common Carry Forward Scenarios
Scenario 1: Bonus Year
| Situation | Action |
|---|
| Normal salary: £80,000 | £8k pension contributions |
| This year + £100k bonus | £180,000 total income |
| Carry forward available | £150,000 |
| Contribution possible | £150,000 (capped by available) |
| Tax relief at 40%/45% | £60,000+ |
Scenario 2: Business Sale
| Situation | Action |
|---|
| Business sold | Large capital receipt |
| Earnings from business | £200,000 in final year |
| Carry forward available | £180,000 |
| Contribution possible | £180,000 |
| Reduces tax bill significantly | |
Scenario 3: Inheritance/Gift
| Situation | Action |
|---|
| Received inheritance | £200,000 |
| Current earnings | £60,000 |
| Carry forward available | £120,000 |
| Maximum contribution | £60,000 (earnings cap) |
Scenario 4: Catching Up
| Situation | Action |
|---|
| Age 50, minimal pension | Want to catch up |
| Income | £100,000 |
| Carry forward | £180,000 available |
| Can contribute | £100,000 (earnings capped) |
| Would need multiple years | To use all carry forward |
How to Make the Contribution
Personal/SIPP Contribution
| Method | Process |
|---|
| Pay into SIPP | Online transfer |
| Tax relief at source | Auto 20% added |
| Higher rate claim | Via Self Assessment |
Employer Contribution
| Method | Process |
|---|
| Ask employer | To make one-off contribution |
| No contribution limits | Just annual allowance |
| Full relief | Including employer NI saving |
| Salary sacrifice | Can be more efficient |
Example: £100,000 Contribution Methods
| Method | You Pay | In Pension | Tax Relief |
|---|
| Personal contribution | £80,000 | £100,000 | £20k auto + claim more |
| Employer contribution | £0 (salary reduced) | £100,000 | No income tax or NI |
Employer contributions avoid NI — potentially more efficient for large amounts.
Restrictions to Know
Money Purchase Annual Allowance (MPAA)
| If You’ve Accessed Pension Flexibly | |
|---|
| MPAA triggered | Only £10,000 allowance |
| Can’t carry forward | From pre-trigger years |
| Still have current year | £10,000 |
What Triggers MPAA
| Trigger | Not a Trigger |
|---|
| Flexi-access drawdown (income taken) | Taking 25% tax-free cash only |
| UFPLS (uncrystallised payment) | Buying annuity |
| Taking taxable lump sum | Capped drawdown (pre-2015) |
Tip
Don’t access pension flexibly if you might make large contributions.
Pension vs ISA for Large Amounts
If You Have £100,000 to Invest
| Consideration | Pension | ISA |
|---|
| Tax relief | 40-45% | None |
| Access | From 55/57 | Anytime |
| ISA limit | £20,000/year | Takes 5 years |
| Tax on withdrawal | 75% taxable | None |
Pension wins for most higher rate taxpayers, but ISA provides flexibility.
Documentation Required
For Self Assessment
| Evidence | Why |
|---|
| Previous years’ contributions | To calculate carry forward |
| P60s | Prove earnings |
| Pension statements | Confirm amounts |
| Employer records | For employer contributions |
HMRC Checks
| If HMRC Queries | Have Ready |
|---|
| Proof of pension membership | In carry forward years |
| Contribution amounts | Each year |
| Earnings | In contribution year |
Key Takeaways
- 3 years carry forward — plus current year
- Must have been in scheme — in years you carry from
- Earnings capped — can’t exceed your earnings
- Check tapering — if income over £260k
- Employer contributions — may be more efficient
- Don’t trigger MPAA — if planning large contribution
For related content, see our pension guide, salary sacrifice calculator, and pension vs ISA calculator.