The annual allowance for tax relief on pensions is currently set at £40,000. The annual allowance is further reduced for high earners. If your income is in excess of £150,000 you will usually have your allowance tapered. This works by reducing your annual allowance by £1 for every £2 your income exceeds £150,000 up to a maximum reduction of £30,000 if your income is over £210,000.
However, any unused annual allowance can usually be carried forward to the current tax year and added to the current year’s annual allowance. The calculation of the exact amount of unused annual allowance that can be carried forward can be complicated especially if you are subject to the tapered annual allowance.
You can carry forward unused allowance from the three previous tax years. You do not need to report this to HMRC. If you have unused annual allowances from more than one year, you need to use the allowance in order of earliest to most recent. Any remaining balances can be used in future tax years, subject to the usual time limits.
This annual allowance only applies to pension savings made to your UK registered pension schemes, or to overseas schemes where either you or your employer qualifies for UK tax relief.
Please contact us if you need help to calculate any past, unused pensions relief that you could utilise to reduce your current year's tax bill.