What is the annual allowance?
Updated 25 March 2020
The annual allowance is the maximum amount of pension savings an individual can have each year that benefit from tax relief. In practice, an individual is subject to a tax charge (the annual allowance charge) where their pension savings exceed their available annual allowance for a tax year.
There's nothing to stop an individual paying in more than their available annual allowance. An annual allowance charge would be payable on the excess and they would still be able to claim tax relief on all their personal and third party contributions up to the higher of 100% of an individual’s relevant UK earnings or £3,600 a year. The annual allowance tax charge could cancel out most (if not all) tax relief if you exceed your annual allowance.
The annual allowance limit for 2020/21 is £40,000.
Unused annual allowance from the previous three tax years can be used in the current tax year, once the current tax year's annual allowance has been used - this is known as Carry Forward.
The value of any tax relief depends on your individual circumstances. This information is based on our understanding of current, taxation law and HMRC practice, which may change.