The three year carry foward rule

A  three year carry forward rule allows you to carry forward unused annual allowance from the previous three tax years.

 

This means that even if the value of your pension savings increase by more than £40,000 in a year, you may not be liable for the annual allowance tax charge.

 

For example, if the value of your pension savings in 2014/15 increase by £50,000 (i.e. by £10,000 more than the annual allowance) 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 annual allowance for those three years would more than offset the £10,000 excess pension saving in the current tax year.

 

There would be no annual allowance tax charge to pay in this case. To carry forward unused annual allowance from an earlier year you must have been a member of a tax registered pension scheme in that year.