How Does Pension Carry-Forward Work in the UK?

Accounting for the Taper in Carry-Forward Calculations

The taper is where most people’s calculations go awry. It’s important to understand that the taper applies to your available allowance in each individual year. It’s not something that’s applied retrospectively to carry-forward that’s already calculated.

Here’s the critical distinction: if you earned £280,000 in 2023/24 and had a tapered allowance of £50,000, and you carried forward £5,000 of that, the taper doesn’t change that £5,000 when you use it later. The taper in 2023/24 already determined your allowance that year. What matters going forward is whether the taper applies in the year you use the carry-forward.

But calculating what you can carry forward requires getting the taper calculation right in the prior years. The taper uses “adjusted income” as its measure. Adjusted income is your threshold income (broadly, employment income, trading income, investment income) plus the value of any pension contributions your employer makes on your behalf. This is where it gets tricky.

If your employer contributes to your pension, this is added back into your adjusted income for taper purposes. This creates a paradox for some people: contributing to your pension actually increases the income figure used to calculate taper, which can reduce your allowance. This is intentional. The taper is designed to restrict relief for the highest earners. But it catches people by surprise.

Let’s illustrate with another example. Tom earned £350,000 in personal income in 2024/25. His employer contributed £25,000 to his pension. His adjusted income is £350,000 plus £25,000 equals £375,000. The taper calculation is (£375,000 minus £260,000) divided by 2 equals £57,500 reduction. His allowance is £60,000 minus £57,500 equals £2,500.

This is the minimum tapered allowance. No matter how high his adjusted income goes, the allowance cannot fall below £10,000. But in Tom’s case, it’s only £2,500 because his income is high enough. He contributes £35,000 personally in addition to the £25,000 employer contribution. But wait: his available allowance against which these contributions are measured is only £2,500. So he has an excess contribution of £32,500 (total contributions of £60,000 minus allowance of £2,500). This creates a tax charge, unless he has carry-forward from prior years to offset it.

The carry-forward available to Tom from 2023/24 depends entirely on what his adjusted income and contributions were in that year. Getting this right requires precision.

The Role of Employer Contributions

Many people assume that their carry-forward allowance is based only on their personal contributions. This is incorrect. Employer contributions count toward using up your annual allowance. So does relief on life insurance premiums within a pension. Any payment made into your pension that qualifies for relief counts.

This has a double effect on carry-forward:

• First, it reduces the unused allowance you have available to carry forward (because your total contributions are higher).
• Second, when your employer makes significant contributions, it can push your adjusted income higher, which can increase taper and further reduce your available allowance.

This creates a perverse incentive for some high earners: the more your employer contributes, the less carry-forward relief might be available to you. Understanding this is critical if you’re planning a discretionary bonus to be taken as pension contributions, or if you’re negotiating compensation with your employer.

Let’s look at Priya’s situation. She earned £280,000 in 2024/25. Her employer contributed £20,000 to her pension. Her adjusted income (£280,000 plus £20,000) is £300,000. Taper: (£300,000 minus £260,000) divided by 2 equals £20,000 reduction. Available allowance: £60,000 minus £20,000 equals £40,000.

Priya also contributed £15,000 personally. Total contributions: £35,000. Unused allowance: £40,000 minus £35,000 equals £5,000 carry-forward.

Now, imagine that in 2025/26, Priya’s employer offers to contribute an extra £15,000. This sounds generous, but it affects her taper in 2025/26. Her personal income is now £280,000. Her employer is contributing £20,000 plus the new £15,000 equals £35,000. Adjusted income: £280,000 plus £35,000 equals £315,000. Taper: (£315,000 minus £260,000) divided by 2 equals £27,500 reduction. Available allowance: £60,000 minus £27,500 equals £32,500.

The extra employer contribution made her taper worse, reducing her allowance from £40,000 to £32,500. This is how compensation structures can work against high earners unless they’re carefully planned.

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Ordering Rules and How Allowance Is Applied

When you have multiple years of carry-forward available and you make a contribution, you can’t choose which allowance you want to use. HMRC has strict ordering rules that determine the sequence:

• Current-year allowance is used first
• Then carry-forward from the oldest available year
• Then carry-forward from the next oldest year, and so on

The concept is that the oldest allowance, being closest to expiry, should be used first to prevent it from lapsing unused.

This ordering is important if you’re making a partial contribution. Imagine you have £60,000 of current-year allowance, £20,000 from 2023/24, and £15,000 from 2024/25. You decide to contribute £50,000 this year. The ordering rules say you must apply this as £50,000 from your current-year allowance. Your carry-forward remains intact for future use (or for the next tax year, if you don’t use it in the current year).

If you contribute £70,000, the ordering is: £60,000 from current-year allowance, then £10,000 from the 2023/24 carry-forward. Your 2024/25 carry-forward (£15,000) is still available for next year.

If you contribute £95,000, you use all three buckets: £60,000 current, £20,000 from 2023/24, and £15,000 from 2024/25. You’ve exhausted all allowance.

Understanding this ordering is crucial if you’re planning to make a contribution before the tax-year end. Many people assume they can choose the most tax-efficient order or mix of allowances. You can’t. You’re bound by HMRC’s ordering rules.

One exception to be aware of: if you have transitional protections (such as the £1m fixed protection or the £1.5m fixed protection, both of which are now obsolete for most people but still affect some), the ordering rules might work differently. If this applies to you, professional advice is essential because the calculations become significantly more complex.

Timing Requirements and Deadlines

Carry-forward relief must be claimed within specific timeframes. The key deadline is the end of the tax year in which you make the contribution. If you make a contribution in the 2025/26 tax year (April 2025 to April 2026), you must notify your pension provider by the end of April 2026 that you want to use carry-forward relief. Late claims are possible in some circumstances, but they’re not automatic and require HMRC agreement.

Many pension schemes require written notification (a letter or form stating that you want to claim carry-forward, which years it’s from, and how much). Some schemes are now set up to handle this digitally, but documentation is still required. It’s not something you can just assume will happen automatically.

Two other timing considerations matter:

• Fund availability: If you’re going to make a large contribution using carry-forward, the funds need to be in place. Some people realise in late March that they want to use carry-forward, but they don’t have the cash available or can’t arrange it in time. Planning ahead is essential.
• Employer contributions: If your contribution is being made by your employer (such as a bonus paid as pension contributions), your employer needs to process this before the end of the tax year for it to count toward that year’s allowance. If your employer pays a bonus in May but designates it as a 2025/26 pension contribution, this typically won’t work for 2025/26 relief; it counts in the year it’s actually paid.

Documentation and HMRC Requirements

HMRC doesn’t require you to file a separate claim for carry-forward relief on your tax return (though this is worth confirming with your tax adviser or accountant, as rules can vary by individual circumstance). Instead, the relief is typically claimed at the point of contribution through your pension provider.

However, you need documentation to back up your claim:

• Pension statements from each of the years you’re looking back at, showing your opening and closing allowance balances and contributions made. Annual Allowance statements are best, but pension annual statements often show this information too.
• Payroll records or P60s from your employer, showing any employer contributions paid into your pension.
• Contribution records from your pension provider, ideally an annual summary showing all contributions (member and employer) for each year.
• Any benefit statements or actuary reports if you’re in a defined benefit scheme, because the treatment of carry-forward in DB schemes is different and more complex.
• HMRC letters or notices of assessment if there were any historic annual allowance issues or excess contribution charges that relate to the years you’re using for carry-forward calculation.

Keep copies of all documentation you provide to your pension provider, because if HMRC asks questions later, you’ll need to be able to evidence exactly what you claimed and why.

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Common Calculation Mistakes

Six common mistakes in carry-forward calculations can cost you thousands in lost relief:

• Overlooking taper in prior years: Many people calculate their available allowance in previous years using the full £60,000 figure, forgetting that if they were a high earner in that year, their actual available allowance was tapered. This overstates their carry-forward.
• Forgetting employer contributions in taper: When calculating adjusted income for taper, remember that adjusted income includes employer pension contributions. Forgetting this understates your taper and overstates your available allowance.
• Double-counting contributions: Some people add up their personal contributions and employer contributions, then wonder why their carry-forward calculation doesn’t match what their pension provider calculated. They’ve counted the same contribution twice or included a contribution that’s been counted elsewhere.
• Confusing tax year boundaries: The tax year runs April to April. A contribution made in March is 2024/25. A contribution made in April is 2025/26. Getting this wrong throws off your entire ordering.
• Expecting automatic application: Assuming your pension provider will automatically calculate and apply carry-forward. Some will; many won’t. You need to instruct them and provide evidence. If you don’t ask, they won’t apply it.
• Failing to update after changes: Not updating your calculation when scheme rules change or when providers change. If you switch pension providers, your old provider’s records about your allowance might not transfer perfectly to the new one. You need to ensure continuity.

##When to Seek Professional Help

You should absolutely seek professional help if you’re subject to taper; if you’ve earned over £260,000 in any of the past three years; if your income has been irregular or lumpy; if you’re unsure about your adjusted income calculation; if you have both personal and employer contributions; if you’re in a defined benefit scheme; if you’ve had any historic annual allowance issues; or if the numbers involved are large enough that a calculation mistake would be costly.

Even if none of these apply, a professional review of your carry-forward position is relatively inexpensive compared to the value at stake. Getting it wrong could mean overpaying tax or, conversely, facing a demand from HMRC if you’ve claimed more than you were entitled to.

Why Professional Guidance Makes The Difference

You can read the rules, understand the concepts, and even attempt the calculation yourself. But carry-forward mechanics require precision that leaves little room for error. The interaction between taper and carry-forward, the treatment of employer contributions in adjusted income, the ordering rules, and the documentation requirements are all areas where small mistakes cascade into significant tax problems.

Professional guidance here isn’t about explaining concepts you could eventually understand yourself. It’s about getting the calculation right the first time, documenting it properly, and implementing it correctly with your pension provider. The cost of one significant error (miscalculating by £20,000 of allowance and triggering an unnecessary £9,000 charge) vastly exceeds the cost of professional review.

Skybound Wealth brings precision to the process. Rather than hoping you’ve calculated correctly, you have certainty. That certainty translates directly to reliable implementation and peace of mind that your carry-forward is claimed exactly as HMRC intends.