Carry-forward of unused annual allowance: the three-year window, the taper, and the corner cases

Carry-forward lets an individual use unused annual allowance from the previous three tax years to support a pension input amount in the current year that exceeds the current year's allowance. It is one of the most useful planning levers in the pension toolkit and one of the easiest to compute wrongly, because three separate rules interact: the three-year window, the order in which allowance is consumed, and the tapered annual allowance. Add the money purchase annual allowance and the whole structure can collapse to nil.

The rule

Start with the window. To carry forward into the current year you must have been a member of a registered pension scheme in the year the unused allowance arose — membership, not contribution. The lookback is exactly three tax years and no further. Allowance unused in a year four years ago is gone; it does not roll up.

Then the ordering, which is where intuition fails. The current year's own annual allowance is used first. Only once the current-year allowance is fully consumed do you reach into carry-forward, and within carry-forward you use the oldestyear first, working forward. This “current year first, then oldest-to-newest” ordering is not cosmetic: it determines how much unused allowance survives into future years, because consuming the oldest first preserves the newer years' allowance for longer.

The amount available to carry forward from any prior year is that year's annual allowance less the pension input amount actually used in that year. For a year in which the individual was tapered, it is the tapered allowance that sets the ceiling — you cannot carry forward allowance the taper never granted. And for any year on or after 2016/17 in which the money purchase annual allowance was triggered, the position is different again (covered below).

A worked example

The clean case first. The figures are the engine's corpus row PTM-EX-02. The individual is not tapered (their income is below the threshold), so the current-year allowance is the full standard £60,000 for 2025/26. They have unused allowance of £10,000, £15,000 and £8,000 from the three prior years.

The £58,000 input is comfortably inside the £60,000 current-year allowance, so carry-forward is never actually drawn on — but the £33,000 is there as headroom, and the result records it so the adviser can see the capacity that remains. Note the ordering would only start to bite if the input exceeded £60,000.

Now let the taper in. Corpus row PTM-EX-04 has the same shape but a high earner: adjusted income of £300,000 tapers the current-year allowance down to £40,000. They carry £12,000 and £5,000 from two prior years (£17,000).

Here the current-year tapered allowance of £40,000 is used first, then £17,000 of carry-forward, giving £57,000 of total allowance against a £58,000 input. The £1,000 excess is charged at the individual's marginal rate — 45% for an additional-rate taxpayer, hence £450. Read the rows in order and the mechanism is plain: the taper shrinks the current-year allowance, carry-forward tops it back up, and only the genuine shortfall is charged.

The common error

Three mistakes recur. The first is ordering: dipping into carry-forward before the current-year allowance is exhausted, which mis-states how much unused allowance survives into the next year and can manufacture or mask a charge. The current year is always spent first.

The second is using the standard allowance for a prior year that was actually tapered. If a high earner was tapered to £40,000 two years ago and contributed £40,000, they have nil to carry forward from that year — not £20,000 (the £60,000 standard less £40,000). Carrying the standard figure inflates the available allowance and understates the charge. The ceiling for each prior year is the allowance that actually applied in that year, taper included.

The third, and the most consequential, is the money purchase annual allowance. Once the MPAA has been triggered — by flexibly accessing a defined-contribution pot, in the current year or any prior year — carry-forward of unused annual allowance can never be set against the MPAA itself. It is not destroyed: PTM055100 cordons it to thealternative annual allowance(the DB side) and the ordinary default test, where it still works as normal. ParaplanAI applies exactly that split (ADR-038), and flags carry-forward claimed from years in which the MPAA already applied — unused allowance from such a year is measured against that year’s alternative allowance, not the full one. A spreadsheet that lets carry-forward soak up a money-purchase excess over the £10,000 cap will quietly understate the charge — the worst direction for compliance. (Whether the MPAA flag itself ever drops after a full DC exit remains open; the engine treats it as permanent — ADR-007.)

One more, easy to miss: the taper itself has a floor. For 2023/24 onward the tapered allowance cannot fall below £10,000 however high the income (it was £4,000 for 2020/21 to 2022/23). Corpus row PTM-EX-08 pins this: adjusted income of £380,000 still leaves a £10,000 allowance, not nil.

The citation

Carry-forward is at PTM055100 and PTM055200in HMRC's Pensions Tax Manual — the membership condition, the three-year window, and the current-year- first / earliest-year-first ordering. The tapered annual allowance, including the £10,000 floor for 2023/24 onward, is at PTM057100. The money purchase annual allowance and its effect on carry-forward are at PTM056500. The thresholds, rates and the floor are held in versioned per-tax-year configuration in the engine, never hard-coded, so a 2022/23 case correctly uses the £40,000 allowance and £4,000 floor while a 2025/26 case uses £60,000 and £10,000.

PTM055100 · PTM055200 · PTM057100 · PTM056500 · engine reading ADR-007 (MPAA boundary)