Carry forward allows individuals to utilise unused annual allowances from the past three tax years, boosting their pension contributions. To qualify, one must have been a member of a registered pension scheme during the tax year from which they wish to carry forward. It’s important to note that the current year’s annual allowance must be fully utilised before tapping into previous years’ allowances.
The process of carry forward is automatic, with the unused allowance from the earliest year utilised first. If the total pension input amount exceeds the annual allowance, the individual may face an annual allowance charge. The carry forward rule can be particularly beneficial for individuals with irregular income or those who are self-employed.
For the tax year 2015/16, the annual allowance was reduced for high-income individuals, creating a tapered annual allowance. Carry forward can be used in conjunction with this tapered annual allowance. However, the money purchase annual allowance (MPAA) and the tapered annual allowance cannot be used together. If an individual triggers the MPAA, they lose the ability to carry forward.
Lastly, it’s crucial to remember that carry forward does not increase the lifetime allowance, which is the maximum amount an individual can accumulate in their pension savings without incurring tax charges.
Go to source article: http://adviser.royallondon.com/technical-central/information-guidance/contributions-and-tax-relief/carry-forward/