Maximum pension contribution with carry forward: the second limit that still applies

Two different limits govern a pension contribution, and they measure different things. The annual allowance asks how much can be paid in — from every source — before a charge arises. The relief limit asks how much of the member's own money attracts tax relief. Carry forward moves the first. It does nothing at all to the second.

That is the gap the phrase “you can put in £240,000 using carry forward” hides. The figure is right about the allowance and silent about the relief, and for a client whose earnings are modest relative to their capital, the silence is the whole answer.

The two limits

The annual allowance is tested against the pension input amount: everything paid in for the member in the year, the employer's contributions included. For an ordinary SIPP or personal pension that rule is FA 2004 s.233(1) — the member's own relievable contributions plus the contributions an employer pays in respect of them — reached through s.229(1)–(2)(b), which aggregates each arrangement's input amount and routes a money purchase arrangement other than a cash balance arrangement to s.233. Where the input exceeds the allowance, unused allowance from the previous three tax years can be carried forward to cover it, provided the member was in a registered scheme in each of those years (PTM055100). Three prior years at the standard £60,000, all unused, plus this year's £60,000, is where the £240,000 comes from.

The relief limit is a different provision entirely. Section 190 caps the relief an individual can have on their own contributions at the amount of their relevant UK earnings chargeable to income tax for the year — with a floor, the “basic amount”, of £3,600, available only through a relief-at-source scheme (s.190(3), s.191(7); PTM044100). HMRC puts it plainly, and closes the door on the obvious workaround in the same breath.

FA 2004 s.188 (relief for members’ contributions) · s.190 (annual limit for relief) · s.228 (annual allowance) · PTM044100 · PTM055100

What counts as relevant UK earnings

Section 189(2) is a short list: employment income; income from a trade, profession or vocation, whether alone or as a partner; and certain patent income where the individual devised the invention. Earnings that a double taxation agreement takes out of UK charge are excluded (s.189(3)).

What is not on the list matters more in practice. Property rental income is not relevant UK earnings. Neither are dividends — including a director's own dividends, which is why an owner-manager on a £12,570 salary and £80,000 of dividends has £12,570 of relief capacity and not £92,570. Nor is pension income, investment income, or a chargeable event gain on a bond. A retired client with a large carried-forward allowance and no earnings has, for relief purposes, £3,600 — and only in a relief-at-source scheme.

FA 2004 s.189 (relevant UK earnings)

A worked case

Take 2026/27. The member is not tapered, has not triggered the money purchase annual allowance, and was in a registered scheme throughout. Relevant UK earnings are £50,000 of salary. The three prior years left £40,000, £35,000 and £45,000 of unused allowance.

Everything lands. £180,000 goes in, the allowance covers all of it, and every penny of the member's own £50,000 attracts relief. But swap the split — the member funding the whole £180,000 personally — and the allowance position is identical while relief is due on £50,000 and not on the other £130,000. Same total, same charge of nil, and a £130,000 difference in the contributions that attract relief. The annual allowance calculation alone cannot tell you which of those two cases you are looking at, because it never asks who paid.

Now the zero-earnings version. A client living on rental income and savings, who has not flexibly accessed a pension and has the same £180,000 of allowance available, can have relief on £3,600 gross in a relief-at-source scheme — £2,880 paid net, with the scheme reclaiming £720. Carry forward is real and it is available; it simply is not answering the question being asked. (Had they taken flexi-access drawdown income, money-purchase input above the £10,000 MPAA would be brought into charge, and carry forward could not cover it.)

The prior-year trap

There is a subtler version, and it runs backwards. Suppose a member paid £60,000 into their own pension two years ago on relevant UK earnings of £30,000. Relief was due on £30,000; the rest was over-relieved and falls to be recovered. That is a relief problem — and it changes nothing about the allowance.

The whole £60,000 was still a pension input amount for that year. It still used up that year's allowance in full, so there is nil to carry forward from it. The instinct — “only £30,000 got relief, so only £30,000 was used” — inflates the headroom by £30,000 and understates whatever charge follows. ParaplanAI raises the relief-eligibility flag on that year and leaves the carry-forward figure alone, which is the correct treatment of both rules at once.

FA 2004 s.229(1)–(2)(b) (total pension input amount ; routing) · s.233(1) (member + employer contributions) · PTM044100 · PTM055100

The common error

The recurring mistake is quoting a single number. “Your maximum contribution is £180,000” is true of the allowance and false of relief for anyone earning less than that, and the client hears one number. Stated as two figures, the position is clearer: how much can be paid in before an annual allowance charge arises, and how much of the member's own contribution attracts tax relief. A member contribution above the relief limit gets no relief. Employer contributions are not subject to that limit, but they still count towards the annual allowance, and whether the employer can deduct them has its own conditions.

Two boundaries sit alongside it and are worth checking in the same pass. The tapered annual allowance calculator settles whether the current or a prior year's allowance was reduced — using the standard £60,000 for a year that was actually tapered is the most common way carry forward is over-stated. And carry forward can never be set against the money purchase annual allowance, so for a client who has flexibly accessed a pot, money-purchase input above £10,000 is charged however much headroom exists elsewhere; the MPAA calculator shows that split, and MPAA and carry forward explains why the allowance survives even though it cannot be used there.

Putting it on the file

Both figures belong in the file note, because both are questions a reviewer will ask. Run the allowance position on the pension carry forward calculator — it shows each prior year's allowance, the input recorded against it, the unused balance and the current-year-first, oldest-first order the allowance is consumed in — and the whole position, taper and MPAA alongside, on the pension annual allowance calculator. The mechanics of the three-year window are in carry-forward of unused annual allowance, and the interaction with a reduced allowance in taper and carry forward together.

Where salary sacrifice is on the table the arithmetic changes shape rather than size: the contribution becomes an employer contribution, so s.190 stops applying to it, while the annual allowance test is unmoved. That is worked through in how much can you salary sacrifice.

FA 2004 s.188 · s.189 · s.190 · s.228 · s.229 · s.233(1) · PTM044100 (relief limit) · PTM055100 (carry forward)