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

Carry forward lets your client reach back into the previous three tax years for unused annual allowance, to support a contribution bigger than this year's allowance alone. Three rules interact: the three-year window, the order the allowance is used in, and the taper. 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, your client 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 four years ago is gone; it doesn't roll up.

Then the ordering — and this is where intuition fails. The current year's own annual allowance is spent first. Only once that's fully used do you reach into carry forward, and within carry forward you use the oldestyear first, working forwards. The “current year first, then oldest-to-newest” ordering isn't cosmetic: it decides how much unused allowance survives into future years, because spending the oldest first keeps the newer years alive for longer.

How much can each prior year give? That year's annual allowance lessthe pension input actually used in it. If your client was tapered in that year, it's the taperedallowance that sets the ceiling — you can't carry forward allowance the taper never granted. And for any year from 2015/16 in which the money purchase annual allowance was triggered, the position is different again (more on that below).

A worked example

The clean case first. The figures are the engine's corpus row PTM-EX-02. No taper — income is below the threshold — so the current-year allowance is the full standard £60,000 for 2025/26, with unused allowance of £10,000, £15,000 and £8,000 sitting in the three prior years.

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

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

The common error

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

The second is using the standardallowance for a prior year that was actually tapered. If your client was tapered to £40,000 two years ago and contributed £40,000, there's nil to carry forward from that year — not £20,000 (the £60,000 standard less £40,000). Carrying the standard figure inflates the headroom 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 the alternative 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 onwards the tapered allowance can't fall below £10,000 however high the income goes (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 PTM055200 in 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 PTM056510. 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.

Run your own figures on the carry forward calculator — it shows the oldest-first consumption working line by line — or the pension annual allowance calculator for the whole position with the taper and MPAA alongside.

PTM055100 · PTM055200 · PTM057100 · PTM056510 · engine reading ADR-038 (the MPAA cordon) and ADR-007 (whether the flag persists after a full DC exit)