26th August 2021 Posted by - Alexander Accountancy
The annual allowance for tax relief on pensions is currently set at £40,000. The annual allowance is further reduced for high earners. This means that if your income is in excess of £240,000 you will usually begin to see your £40,000 annual allowance tapered. For every complete £2 your income exceeds £240,000 the annual allowance is reduced by £1. The annual allowance can also be reduced if you have flexibly accessed your pension pot.
If you have not used all your annual allowance in a tax year, then the unused allowance can usually be carried forward to the current tax year and added to the current year’s annual allowance. The calculation of the exact amount of unused annual allowance that can be carried forward can be complicated especially if you are subject to the tapered annual allowance.
Normally, you can carry forward unused allowance from the three previous tax years. You do not need to report this to HMRC. If you have unused annual allowances from more than one year, you need to use the allowance in order of earliest to most recent. Any remaining balances can be used in future tax years, subject to the usual time limits. You do not need to report this to HMRC.
HMRC’s pension calculator can also help you check if you have any unused annual allowance to carry forward.
