Carry forward – where do people go wrong?
This article first appeared in Money Marketing in March 2026.
In the run up to tax year end your clients will likely be looking to make use of their 2025/26 allowances and reliefs if they haven’t already. If they are looking to pay the maximum into their pension without a tax charge applying, then it will likely be necessary to work out their unused annual allowance using carry forward.
When using carry forward, it is important to be accurate as the consequences of getting the calculation wrong can mean an annual allowance tax charge for the client or even contributions needing to be refunded.
At Royal London, our technical team has checked many hundreds of carry forward calculations over the years, so have a very good idea of where the main mistakes are made. We thought we’d share these with you so that you don’t do the same.
Where are mistakes made?
Here are the biggest mistakes people make when working out unused annual allowance:
- Getting mixed up between annual allowance and tax relief
When you are using carry forward, you are working out the unused annual allowance not unused tax relief. So, it’s important to remember that, for an individual contribution, the client will still need earnings in the year of payment to support the contribution. For example, if there is £100,000 worth of unused annual allowance, the client will need earnings of at least this in order to make an individual contribution of this level and receive tax relief.
For 2025/26 the maximum available annual allowance using carry forward is £220,000. This is annual allowance of £40,000 for 2022/23 plus 3 times £60,000 for 2023/24 – 2025/26. - Forgetting about the money purchase annual allowance (MPAA) or tapered annual allowance
Both of these have an impact on how much annual allowance is available. If the client has triggered the MPAA, then it’s not possible to use carry forward to increase contributions to defined contribution schemes above £10,000 without an annual allowance tax charge applying. Carry forward will still be available for any defined benefit (DB) schemes.
The tapered annual allowance rules apply from tax year 2016/17 onwards, so in theory could apply to all four tax years in the carry forward calculation. If the taper does apply, carry forward can still be used and the standard annual allowance of £60,000 or £40,000 for tax year 2022/23 is simply substituted by the tapered annual allowance for each year it applies. - Not handling employer contributions correctly
Employer contributions as well as individual and third party contributions count towards the annual allowance, so these should be included when working out unused annual allowance.
Remember that unlike individual contributions, employer contributions can be paid in excess of 100% of the client’s earnings. Corporation tax relief will be available provided the “wholly and exclusively” rule applies. - Not handling a previous carry forward correctly
When using carry forward, you maximise the current year first before going back to your earliest year and work forwards. So, if an earlier year includes a contribution of more than the annual allowance for that year, you therefore know there will be no annual allowance remaining from that year to carry forward to the current year. - Getting confused about the eligibility for carry forward
Anyone who was a member of a pension scheme in the year they are carrying forward from is eligible to use carry forward to the current year. The definition of member is very broad and includes active, deferred, pension credit and pensioner members. Really the only clients not eligible to use carry forward would be those taking out a pension for the very first time. It is not necessary to make contributions using carry forward to a current scheme. These can be made to a brand new scheme. It’s also not necessary to have made a pension contribution in the year you are carrying forward from.
Even if the client lived abroad during one of the previous years, carry forward will still be available for that year if they meet one of the member definitions. - Calculating DB pension input amounts incorrectly
When working out the available annual allowance for a DB scheme, it is important to obtain a history of pension input amounts from the scheme. The calculation of the pension input amount can be complicated, and different schemes will have different ways of calculating pensionable service and salary. - Underestimating lifetime allowance (LTA) protection and the impact on pension funding
The LTA was completely removed from 6 April 2024, but LTA protection can still be a valuable benefit potentially allowing higher lump sum allowance or lump sum and death benefit allowance. Clients with LTA protections secured prior to 15 March 2023 can pay into pensions without their protections being affected. So, carry forward could in theory allow for a large contribution with no tax charge applying in cases where enhanced or fixed protection applies.
Knowing the most common mistakes people make with carry forward calculations will hopefully make sure you are fully prepared for your tax year end saving you time and potentially a tax charge for your clients.
