HM Revenue & Customs (HMRC) has reminded taxpayers that they can carry forward any unused annual allowance if their pension savings exceed this year’s allowance.
The annual allowance is the amount of pension savings an individual can pay into a pension scheme before they begin to incur tax.
However, they will not be taxed on savings over the annual allowance if they carry forward annual allowance from the previous three tax years.
For most people, the annual allowance is capped at £40,000. The ‘tapered annual allowance’ only comes into force if an individual earns more than £150,000 each year.
The tapered annual allowance starts at £40,000, but is reduced by £1 for every £2 you earn above £150,000. The minimum allowance is £10,000.
The annual allowance may also be reduced if you have taken a lump sum or drawn down from your pension pot, known as the money purchase allowance. For more information on this scheme, click here.
To work out how much unused annual allowance you have remaining, use the HMRC calculator here.
In its notice, HMRC said: “You can carry forward unused annual allowances from the 3 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 them in order of earliest to most recent.
“If you only need to use some of your unused annual allowance or alternative annual allowance from a tax year, you can use the rest in a future year.”