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Carry forward – where do people go wrong?

5. Get confused about the eligibility for carry forward

Anyone who was a member of a pension scheme in the year they are carrying forward from is eligible to use carry forward to the current year.  The definition of member is very broad and includes active, deferred, pension credit and pensioner members.  Really the only clients not eligible to use carry forward would be those taking out a pension for the very first time.  It’s not necessary to make contributions using carry forward to a current scheme, these can be made to a brand new scheme.

6. Try and calculate DB pension input amounts themselves

When working out the available annual allowance for a DB scheme, it is important to obtain a history of pension input amounts from the scheme.  The calculation of the pension input amount can be complicated and different schemes will have different ways of calculating pensionable service and salary.

7. Forget about the complications of the 2015/16 tax year

A carry forward calculation for 2022/23 will not normally include the 2015/16 tax year but it might still be necessary to be aware of the differences for 2015/16. For example, you might be checking a historic carry forward for a client or checking there is enough carry forward to cover a previous year.  For 2015/16 the pre alignment period, the period between 6 April 2015 and 8 July 2015, had an annual allowance of £80,000 with a maximum of £40,000 able to be carried forward to the post alignment period which was the remainder of the tax year.

Knowing the most common mistakes people make with carry forward calculations will hopefully make sure you are fully prepared for your tax year end, saving you time and potentially a tax charge for your clients.

For more technical content and tax year end support visit Royal London’s tax year end hub.