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If i have a pension and for the last 3 years didn't make any contributions. Then, this current tax year i make the full £60k contribution as per the annual allowance. Next year, what would my maximum contribution be - the way i see it there are 2 possibilities.

option 1 year 1 - 0 contribution - 40k not used year 2 - 0 contribution - 40k not used year 3 - 0 contribution - 40k not used year 4 - 60k contribution year 5 - max contribiton = 60k + 40 (year 2) + 40 (year 3) = total 140k

option 2 year 1 - 0 contribution - 40k not used year 2 - 0 contribution - 40k not used year 3 - 0 contribution - 40k not used year 4 - 60k contribution (allocated as 40 to year 1 and 20 to year 2) year 5 - max contribiton = 60k + 20 (year 2) + 40 (year 3) + 60 (year 4) = total 180k

it all depends on how current year contributions are treated. do they fill the current years allowance before flowing down to previous years. or do current year contributions start by filling gaps in the previous 3 years (oldest first).

TIA

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They fill the current years' allowance before flowing down to previous years (oldest first).

References:

The general UK government page:

If you use all of your annual allowance for the current tax year

You might be able to carry over any annual allowance you did not use from the previous 3 tax years.

This technical manual from HMRC goes into a lot of detail and is clear that in all cases:

The annual allowance for the current tax year is used first.

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    It seems to me that the two "How available annual allowance is used up" sections that are at the end of the technical manual you cite are exactly the rules that OP is after...
    – AakashM
    May 18, 2023 at 20:32
  • @AakashM oh yes, it does explicitly state "The annual allowance for the current tax year is used first.", thanks. May 18, 2023 at 20:35

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