Multi-Year Tax Planning: Why What You Do in 2026 Affects Your 2027 Pension Allowance

The pension carry forward rule most people ignore

If you earn above £100,000, your pension strategy this year directly shapes what you can contribute next year. That's not a coincidence — it's how pension carry forward works, and most people only discover it after missing the window.

The annual allowance for pension contributions in 2026/27 is £60,000 (or 100% of your earnings, whichever is lower). Carry forward lets you stack unused allowance from the three previous tax years on top of that. Done well, a single year of deliberate planning can open up a contribution window of well over £100,000.

How pension carry forward actually works

The three-year lookback explained

Each tax year, you have an annual allowance. Unused portions don't disappear — they carry forward for up to three years. In 2026/27, that means you can draw on unused allowance from 2023/24, 2024/25, and 2025/26.

The order matters. You must use the current year's allowance first, then draw on carry forward starting from the oldest year. You also need to have been a member of a registered pension scheme in each year you want to carry forward from.

What counts as unused allowance

Your used allowance in any given year is the combined total of employer and employee contributions — not just what you personally paid in. If your employer contributed £10,000 and you contributed £5,000, you used £15,000 of your allowance that year.

With a £60,000 annual allowance and only £15,000 used, you have £45,000 to carry forward from that year. Across three years of under-contribution, the available headroom can add up quickly.

Why 2026 is a pivotal year for your pension allowance

The £100k trap makes carry forward more valuable

If your adjusted net income (ANI) sits between £100,000 and £125,140, you're caught in the £100k personal allowance trap. For every £2 your ANI exceeds £100,000, you lose £1 of your Personal Allowance (currently £12,570). That produces an effective marginal tax rate of 60% on income in that band — 40% income tax plus an effective 20% from the lost allowance.

Salary sacrifice into your pension reduces your ANI directly. Bring it below £100,000 and you exit the 60% band entirely. With carry forward available, you can make a larger one-off contribution — either personally via Self Assessment or through an enhanced salary sacrifice arrangement — to clear the trap in a single move.

The mechanism: ANI drops → Personal Allowance is restored → income previously taxed at 60% is now taxed at 40% → you keep an extra 20p in every pound across that range.

For the full maths, the £100k tax trap explained guide covers it in detail.

When carry forward and salary sacrifice work together

Salary sacrifice into your pension reduces your ANI in real time through payroll. Personal pension contributions — paid directly and claimed through Self Assessment — reduce your ANI retrospectively when you file. Both routes work; the timing of the tax relief differs.

If you're planning a large carry forward contribution — say, £80,000 using three years of unused allowance — you need to be sure your ANI calculation accounts for it correctly. A £110,000 salary with an £80,000 pension contribution brings ANI to £30,000, well clear of the threshold. But whether you use salary sacrifice or a personal contribution affects when that relief actually lands.

Multi-year planning: the decisions that compound

Childcare eligibility adds another dimension

The £100,000 ANI threshold doesn't just affect your tax bill. Both 30 Free Hours childcare and Tax-Free Childcare are withdrawn when either parent's ANI exceeds £100,000 — worth up to £6,000 per child per year for 30 Free Hours, plus up to £2,000 per child per year for Tax-Free Childcare.

If you have children in nursery now, a pension contribution in 2026/27 doesn't just save tax at 60% — it can also restore childcare entitlements worth thousands more. A parent earning £108,000 who sacrifices £9,000 into their pension brings ANI to £99,000, saves approximately £3,600 in income tax, and unlocks childcare benefits potentially worth £8,000 or more depending on the number of children.

That's a decision made in 2026 with consequences running through 2027 and beyond.

Annual allowance tapering for higher earners

If your adjusted income — a slightly different figure that includes employer contributions — exceeds £260,000, the tapered annual allowance starts cutting your £60,000 allowance by £1 for every £2 above that threshold, down to a minimum of £10,000.

This makes carry forward planning more complex for very high earners. If your allowance was tapered in a previous year, the carry forward from that year reflects the tapered figure, not the full £60,000. You need the actual allowance for each of the three lookback years to calculate your true headroom.

If your income has varied significantly — a bonus year in 2024/25, for example — your available carry forward may be higher than you expect. Or lower. The only way to know is to model it year by year.

The 2026/27 tax year optimisation guide covers how bonus income and pension timing interact in more detail.

How to model your carry forward position before acting

Carry forward calculations need four inputs: your annual allowance for each of the three lookback years (including any tapering), your total pension contributions in each of those years (employer plus employee), your current year's allowance, and your planned contribution this year.

Get any of those wrong and you risk an annual allowance charge — a tax bill that claws back relief on excess contributions. His Majesty's Revenue and Customs (HMRC) expects you to self-report this through Self Assessment.

A £60,000 annual allowance, three years of under-contribution, and a salary in the £100k–£125,140 band: the combined tax saving from a well-timed carry forward contribution can exceed £15,000 in a single year.

TaxPilot's multi-year planning tool models your pension allowance across 2024/25 through 2028/29, tracks carry forward headroom, and shows how different contribution levels affect your ANI, tax band, and childcare eligibility — all in one view. If you're weighing your options, you can see how the approach compares to other tools.

Model your carry forward position and 2026/27 savings at taxpilot.diy →

FAQs

What is pension carry forward and who can use it? Pension carry forward lets you use unused annual allowance from the previous three tax years on top of the current year's allowance. You must have been a member of a registered pension scheme in each year you want to carry forward from, and you must use the current year's allowance first. In 2026/27, that means you can draw on 2023/24, 2024/25, and 2025/26.

How much can I contribute using carry forward in 2026/27? It depends on your unused allowance across the three lookback years. If you had the full £60,000 allowance each year and used none of it, you could theoretically carry forward up to £180,000 — giving a combined maximum of £240,000 alongside this year's allowance. In practice, most people have made some contributions, and the tapered annual allowance may have reduced the figure in previous years for higher earners.

Does salary sacrifice count towards my annual allowance? Yes. All pension contributions count — your own, your employer's, and anything going in via salary sacrifice into your pension. HMRC measures the total across all sources against your allowance for the year.

Can I use carry forward to escape the £100k personal allowance trap? Yes, if you have sufficient carry forward headroom. A large enough pension contribution — through salary sacrifice or a personal contribution claimed via Self Assessment — reduces your ANI. Bring it below £100,000 and you restore your full Personal Allowance, exiting the 60% effective marginal tax rate band.

What happens if I accidentally exceed my annual allowance? HMRC charges tax on the excess at your marginal rate, clawing back the relief. You report and pay this through Self Assessment. It's worth modelling your exact position before making a large contribution — particularly if your allowance was tapered in any of the lookback years.

Does carry forward affect Tax-Free Childcare or 30 Free Hours eligibility? Not directly — but the pension contribution that uses your carry forward headroom does. If it brings your ANI below £100,000, you become eligible for both Tax-Free Childcare and 30 Free Hours, provided you also meet the working hours requirement.

Do I need to tell HMRC I'm using carry forward? No advance notification is required. You make the contribution and report it correctly on your Self Assessment return. Your pension provider doesn't automatically check your carry forward position, so the responsibility to stay within your allowance sits with you.

The number to know before the tax year closes

Your carry forward headroom from 2023/24 expires on 5 April 2027. Unused allowance from that year can only be deployed in 2026/27 — after that, it's gone permanently. For someone in the £100k–£125,140 band, that unused allowance could be worth £12,000 or more in tax savings at the 60% effective marginal rate.

The decision you make before April 2027 is one you can't revisit. Model the numbers now, before the window closes.

See your carry forward headroom and 2026/27 pension strategy at taxpilot.diy →