Carrying forward previously unused pension allowance to use this year
Previous years unused pension allowances can be carried forward so you can exceed the £40,000 tax free limit this year. Higher earners should make the most of their pension allowance now, as it is under threat.
At the moment the annual tax free pension contribution allowance is £40,000. Previous to April 2014 it was £50,000 per year, tax free.
If you have exceeded your limit for this year, or intend to next year, you should have a look at your three previous tax returns. Has the £40,000 limit been reached in 2015/16 and 2014/15? Had the £50,000 limit been reached in 2013/14? If not you may be able to carry forward any unused allowance to be used in the current tax year. In that case you may only have to pay tax on any amount of pension savings in excess of the £40,000 plus any unused allowances carried forward from previous three years. This potentially allows contributions in a tax year of up to £170,000, but tax free contributions are capped at 100% of relevant U.K. earnings
For those earning over £150,000, there are changes from April, 2016. The Annual Allowance of £40,000 will be tapered for those with an income of over £150,000 and will drop to £10,000 for income levels of £210,000 or more. There is a lot of talk about what will happen the pension allowance going forward. There are rumours the Government are planning further reductions for higher income earners or even scrapping it altogether. More will be known after March 16th budget, but it makes sense to make the most of your allowances while you can.
There are restrictions with regards to what kind of pension you contribute to in order to be able to do this, such as you must be part of a registered pension scheme.