What Proactive Steps Should You Take Before Tax Year-End to Maximise Pension Carry Forward?
The end of the tax year isn’t just a deadline, it’s a powerful opportunity. Especially when it comes to maximising your pension contributions using carry forward rules.
If you’re a company director, business owner, or high-income earner, knowing how to use carry forward correctly can help you:
- Slash your income or corporation tax bill
- Boost your retirement pot significantly
- Avoid wasting unused pension allowance from previous years
But timing is everything. Here’s a clear guide to help you take full advantage of your pension allowance before 5 April 2026.
Why Year-End Planning Matters
Pension contributions must be made in the tax year you want them to count toward. You can’t go back and make retrospective contributions for a previous year.
That means if you want to use your allowance for 2025/26, the payment must be received by your pension scheme by 5 April 2026
If you don’t act in time, you lose the chance to use your allowance, potentially missing out on thousands in tax relief.
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What is Pension Carry Forward?
Carry forward allows you to use any unused annual pension allowance from the previous three tax years, as long as:
- You were a member of a UK-registered pension scheme in those years
- Your total personal contributions do not exceed your net relevant earnings (excluding dividends)
For the 2025/26 tax year:
- Standard annual allowance = £60,000
- Maximum carry forward = £40,000 x 3 = £120,000
- Potential total contribution (if unused allowance available) = up to £180,000
Note: Company/employer contributions aren’t restricted by your salary, but total contributions still count toward the annual limit.
Who Benefits Most from Carry Forward?
- Company directors who want to extract profits tax-efficiently via employer contributions
- High earners who want to reduce personal tax liabilities
- People returning to work or recovering lost pension years
- Business owners approaching retirement and aiming to fund pensions fast
Step-by-Step: What to Do Before Year-End
1.
Contact Your Accountant or Adviser Early
Don’t wait until late March. Large contributions take time to process and verify. Aim to speak to your accountant or adviser by February.
2.
Calculate Available Allowance and Carry Forward
Work out how much of your pension annual allowance you used in:
- 2022/23
- 2023/24
- 2024/25
Then confirm how much you can carry forward. Your current year’s allowance must be used first, before you dip into previous years.
3.
Check for Tapered Annual Allowance
If your adjusted income exceeds £260,000, your current allowance may be reduced to as low as £10,000. Carry forward can help, but only if you’re eligible based on scheme membership and earnings.
Photo by Gabrielle Henderson on Unsplash
4.
Consider Employer Contributions
If you run a limited company:
- Make the contribution from the business
- It doesn’t need to match your personal income
- Contributions are typically corporation tax deductible
This route is often more flexible and tax-efficient for directors.
5.
Get Written Confirmation of Pension Inputs
Ask your pension provider to confirm exactly what has been contributed in each of the previous three years.
6.
Make the Payment by 5 April
Ensure the payment clears into your pension account before midnight on 5 April. Initiating a transfer is not enough.
Real-World Example (2025/26 Scenario)
Sarah, a director earning £100,000 in salary and £50,000 in dividends, made no pension contributions in the last three years.
- Annual allowance this year = £60,000
- Carry forward from last 3 years = £120,000
- Total potential = £180,000
She pays £180,000 from her company to her pension:
- Reduces corporation tax by 25% = £45,000
- Moves cash out of the business tax-free
- Grows the fund tax-free
(Note: Had she used personal contributions, her maximum would be capped at her net relevant earnings from salary only.)
Common Mistakes to Avoid
- Thinking dividends allow you to make personal contributions: they don’t count toward earnings
- Ignoring the tapered allowance if income exceeds £260,000
- Forgetting to check previous scheme membership for carry forward eligibility
- Waiting until late March to act
Key Questions to Ask
- How much carry forward do I have?
- Am I affected by the tapered allowance?
- Can I contribute via my company?
- What are my earnings for personal contribution limits?
- Has the Money Purchase Annual Allowance (MPAA) been triggered?
Don’t Let the Window Close
If you don’t use your 2022/23 allowance by 5 April 2026, it will be gone forever. That’s potentially £40,000 of tax-advantaged space lost.
FAQ: Pension Carry Forward & Tax Year-End
Q1: What is the pension annual allowance for 2025/26?
The annual allowance for most individuals remains £60,000 for the 2025/26 tax year. High earners may have a tapered allowance down to £10,000 depending on income.
Q2: How much unused allowance can I carry forward?
You can carry forward unused allowance from the previous three tax years, provided you were a member of a UK-registered pension scheme during those years. In 2025/26, the maximum potential contribution with carry forward is £240,000 (3 × £60,000 + £60,000 current year).
Q3: Can company directors contribute more through their business?
Yes. Employer contributions from your company are often more tax-efficient. They’re not limited by salary and can qualify for corporation tax relief, making them ideal for profit extraction.
Q4: What is the deadline for pension contributions this year?
To use the 2025/26 allowance, contributions must be received by your pension scheme by 5 April 2026. Bank transfer delays can lead to missed deadlines, so plan early.
Q5: What’s the risk of missing the deadline?
If you don’t use your 2022/23 allowance by 5 April 2026, you lose it forever. That could mean missing out on up to £40,000 of tax-advantaged contributions.
Q6: Is pension carry forward only for high earners?
No. While high earners benefit the most, anyone with unused allowance and sufficient earnings can use carry forward, including self-employed, returning workers, and business owners.
Talk to Nuvo’s Experts
We help company directors, business owners, and professionals:
- Maximise pension contributions
- Reduce corporation and income tax
- Prepare for retirement with clarity
Book a free call to explore your options and take action before the deadline.
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