The Pension Annual Allowance for Expats

The Annual Allowance (AA) is the cornerstone of HMRC's mechanism for limiting the tax relief available on pension contributions. For most UK residents with straightforward employment, the AA is a background rule — their contributions fall well within the limit. For high earners, DB scheme members, and internationally mobile individuals managing UK pensions from abroad, the AA can be more directly relevant.

The Standard Annual Allowance

For the 2026/27 tax year, the standard Annual Allowance is £60,000. This represents the maximum total pension input across all registered pension schemes in the UK tax year (6 April to 5 April) before a tax charge applies.

The AA was increased from £40,000 to £60,000 from April 2023, as part of the broader pension changes in the Spring Budget 2023. This was primarily intended to encourage older, experienced workers — particularly senior NHS doctors — to remain in employment without being penalised for pension accrual.

What counts towards the AA?

For DC pensions (SIPPs, workplace DC):

• Your own contributions (grossed up for tax relief — so a £10,000 personal contribution at basic rate becomes £12,500 gross)
• Employer contributions
• Any other third-party contributions

For DB pensions:

• The pension input amount is calculated as the increase in the value of your benefits over the tax year, multiplied by 16, plus the value of any lump sum increase. This is known as the "pension input amount" for DB schemes and is not the same as a simple contribution figure. It can be calculated by the scheme actuaries.

What does NOT count:

• Transfer payments between registered pension schemes do not count towards the AA
• Pension investment returns (i.e., growth within the pension fund) do not count
• The State Pension does not count

The Tapered Annual Allowance

The tapered AA reduces the £60,000 standard allowance for very high earners. For 2026/27:

• Threshold income: If your threshold income (broadly, net income excluding pension contributions) exceeds £200,000, the tapering calculation begins.
• Adjusted income: If your adjusted income (broadly, net income plus employer pension contributions) exceeds £260,000, the AA reduces.
• Reduction rate: For every £2 of adjusted income above £260,000, the AA reduces by £1.
• Minimum AA: The AA cannot be tapered below £10,000.

For example, adjusted income of £300,000 would result in a tapered AA of £40,000 (£300,000 − £260,000 = £40,000 excess; £40,000 ÷ 2 = £20,000 reduction; £60,000 − £20,000 = £40,000).

The tapered AA primarily affects high-earning UK residents or those with significant UK earnings from employment or self-employment. For most non-residents without substantial UK income, the standard £60,000 AA is the relevant limit.

Carry Forward

Carry forward allows unused Annual Allowance from the previous three tax years to be used in the current year, enabling contributions above the standard £60,000 in specific circumstances. This can be useful for:

• Making a large one-off contribution following a business sale or other windfall
• Catching up on contributions after a career break
• Maximising pension funding before a high-income year triggers tapering

To use carry forward:

• You must have been a member of a UK registered pension scheme in each of the three previous tax years (you need not have made contributions — being an active or deferred member qualifies)
• You must have exhausted the current year's AA before carry forward kicks in
• The order is: use the current year's AA first, then the oldest year's unused AA, working forward

Carry forward and non-residents:

Non-residents who were members of a UK registered pension scheme in the prior three years can in principle access carry forward. However, the practical limitation is that contributions to UK pensions require relevant UK earnings for full tax relief, and most non-residents without UK earnings will not be in a position to make significant new contributions regardless of the carry forward available.

If a non-resident has relevant UK earnings in a particular year (e.g., from a UK employment secondment), carry forward could meaningfully increase their ability to fund the pension in that year.

The Money Purchase Annual Allowance (MPAA)

The Money Purchase Annual Allowance (MPAA) is a reduced allowance of £10,000 that applies once a pension holder has "flexibly accessed" a DC pension. Taking any taxable income from a flexi-access drawdown arrangement, or receiving a UFPLS, triggers the MPAA.

Effect of the MPAA:

Once triggered, your Annual Allowance for money purchase (DC) pensions is capped at £10,000. You retain the full £60,000 (or tapered) AA for DB scheme accrual, but the total AA for DC contributions cannot exceed £10,000.

Purpose of the MPAA:

The MPAA prevents "pension recycling" — the scheme by which a person draws pension income and immediately recycles it back into a pension to gain additional tax relief on the same money.

Carry forward and the MPAA:

Carry forward is not available in respect of the MPAA. If the MPAA is triggered, you cannot use historical unused DC AA to make larger DC contributions in the current year.

MPAA and expats:

For non-residents who have triggered flexible drawdown from a SIPP (which is common — accessing the pension at 55 while continuing to work abroad), the MPAA applies to any remaining UK pension contributions. If you have UK earnings and are making new contributions to a SIPP or pension while also drawing from it flexibly, you must ensure contributions do not exceed £10,000 per year.

Overseas Pension Contributions and the UK AA

If you are a member of an overseas pension scheme (in your country of residence), contributions to that scheme do not generally count towards the UK Annual Allowance. The AA is specific to UK registered pension schemes.

However, there are complex rules around Relevant Non-UK Schemes (RNUKS) and former UK pension members who have moved abroad. Specifically:

• If an overseas employer makes contributions on your behalf to an overseas scheme, these do not use up UK AA (with limited exceptions)
• QROPS are not UK registered pension schemes, so contributions to a QROPS (rare in practice for non-residents) would not directly interact with the UK AA

The rules here are technical, and if you have contributions being made to both a UK pension and an overseas scheme, specialist advice is needed to confirm the interaction.

Annual Allowance Charges

If your total pension input in a tax year exceeds the Annual Allowance (after carry forward), the excess is subject to an Annual Allowance charge. This is an income tax charge at your marginal rate, designed to claw back the tax relief that has been (or would have been) given on the excess contributions.

For non-residents, the marginal rate for this calculation is the effective UK income tax rate — which depends on your UK income and personal allowance entitlement. In some circumstances, the scheme itself can pay the charge on your behalf (known as a "scheme pays" arrangement), though this comes at a cost to the pension.

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This guide is for general information only and does not constitute financial, tax, or legal advice. Annual Allowance rules are subject to change and individual circumstances vary significantly. Always seek regulated advice before making pension contribution decisions.

How Global Investments Can Help

Global Investments helps internationally mobile clients navigate pension contribution rules, including Annual Allowance planning, MPAA management, and carry forward calculations. Whether you have a window of UK earnings and want to maximise pension funding, or need to ensure drawdown income is structured to avoid unintended MPAA triggering, our specialists can help.

Contact us to discuss your pension contribution planning.