Tax Glossary

Carry Forward

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Last updated on:
March 17, 2024

The concept of "carry forward" allows individuals and businesses to apply previous years' losses or unused allowances against current or future tax liabilities, optimizing tax efficiency and financial planning.

Carry Forward with Pensions

The Pension Annual Allowance represents the maximum sum you can contribute to your pension each year with tax relief. For the 2023/24 tax year, this cap is up to £60,000, dependent on your income. To leverage carry forward for pensions:

  • Maximize Contributions: Initially, you must contribute the maximum allowable amount to your pension within a tax year.
  • Utilize Unused Allowances: Subsequently, you're permitted to tap into up to three prior years' worth of unutilized allowances, enhancing your pension contributions.
  • Income Limitation: Your contribution, including carry forward amounts, cannot exceed your annual earnings.
  • Membership Requirement: Eligibility for carry forward necessitates membership in a private pension scheme for the years from which allowances are being carried forward.

It's crucial to note that although carry forward can significantly bolster your pension savings, these additional contributions beyond the annual allowance don't qualify for pension tax relief and must be declared on a tax return.

Example of Pension Carry Forward

Consider the following scenario over three tax years, illustrating how unused allowances can be carried forward to substantially increase pension contributions in a single year:

  • 2020/21: With an annual allowance of £40,000, you contribute £10,000, leaving £30,000 unused.
  • 2021/22 and 2022/23: Each year has a £40,000 allowance with £30,000 contributions, resulting in £10,000 unused annually.

In this example, the accumulated unused allowance totals £50,000. This allows for a potential £90,000 contribution in a subsequent year, provided your income supports this level of contribution.

How to Carry Forward a Loss

  • Self Assessment: Record the loss on your Self Assessment tax return. Filing a return is crucial, even in loss-making years, to claim the loss in subsequent years.
  • Type-Specific Claims: The loss must be claimed against future profits of a similar nature. For instance, a loss from Cryptocurrency investments can't offset profits from real estate sales.

For detailed guidance on claiming losses and navigating the carry forward process, the HMRC website offers comprehensive resources and instructions.

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