What is the 'carry forward'?

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Tax stampYou would only be subject to an Annual Allowance (AA) tax charge, if the value of your total pension savings for a year, increase by more than the AA limit for that year.

However, a three year carry forward rule allows you to carry forward unused AA from the previous three years. This means that even if the value of your pension savings increase by more than the AA limit in a year you may not be liable to the AA tax charge.

For Example:
If the value of your pension savings in 2014/15 increased by £50,000 (i.e. by £10,000 more than the AA limit) but in the three previous years had increased by £25,000, £28,000 and £30,000, then the amount by which each of these previous years fell short of the AA limit for those three years would more than offset the £10,000 excess pension saving in the current year. There would be no AA tax charge to pay in this case.
 
To carry forward unused AA from an earlier year you must have been a member of a tax registered pension scheme in that year.