Increasing pension contributions / child benefit charge
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fuelcrusher wrote: »How many children do you claim child benefit for and how far above 50K is his gross.
For me ever since the child benefit changes came in it has been a no brainer to take my gross down to 50K by topping up a pension, especially at the beginning when I was claiming for five children and earning about 60k. I think that 10k in my pension was 'costing' me about £1400 iirc.
Now I'm only claiming for three children and fortunately my salary is heading towards 80K but I'm still struggling to find reasons to stop putting enough in my pension to bring my gross below 50K.
To be honest I think the only thing that could stop me doing this would be when I hit the 40K max contribution or laws change.
If the income isn't absolutely needed for something then hit the spreadsheets again and convince the man. (might also help to tell him it'll help him retire earlier?)
How do you plan to keep under the lifetime allowance? Even with conservative growth rates, you would expect to hit the lifetime allowance as it stands today in about 17 years @ 40ka year. Faster if growth is higher. They say lifetime allowance will increase its inflation, which it may do, but then it may not as well......
Is it mainly because you won't be contributing at that level for many years?0 -
Anomaly100 wrote: »He has the option of salary sacrafice which would definitely reduce his taxable pay. Any questions he should ask before signing up for this?
Key questions I would ask
1) does the employer pay their NI savings (~13% of the contribution) into the pension?
2) does the reduction in salary impact any other benefits (e.g. Death in service benefit which is usually a multiple of base salary)
Otherwise, you should gain an extra ~2% contribution via sacrifice as you won't pay NI on the contribution.0 -
He will need to do a tax return and that will sort it out for him. They use "adjusted net income" to work out the income used for the child ben charge - if this is below £50k then no charge. All pension contribitions will reduce ANI.Anomaly100 wrote: »Just re-read this and thought I best mention that I know I can reclaim an additional 20% tax relief through his tax return.
What I can't work out is how the child benefit tax calculator deals with his pension contribution. We were hoping to reduce his taxable pay to just over £50k in order to minimise the charge.
See http://www.gov.uk/guidance/adjusted-net-income0 -
Sorry to have to confirm my understanding is correct.
I've added up the pension contributions that my husband will make in this tax year. It comes to £6000. Now when they're added to the pension pot they get tax relief added at 20% so the pension pot actually receives £7500.
So in trying to work out his taxable salary for the child benefit tax calculator. He also receives the full amount of childcare vouchers of 2916.
I either do
64200 - 6000 - 2916 = 55284
child benefit charge is £1325
or
64200 - 7500 - 2916 = 53784
child benefit charge is £943
If anyone could let me know which is correct?0 -
Anomaly100 wrote: »
64200 - 7500 - 2916 = 53784
child benefit charge is £943
If anyone could let me know which is correct?
This one is correct. You should always use the gross pension contribution in your calculations.0 -
Hi just a quick thought, as an IFA I deal with many employers and normally they are happy with a 'salary sacrifice' arrangement. Basically, this is the easiest way to sort your pension contributions whilst also being the most tax efficient and allowing you to reduce your income sufficiently to be able to claim the benefit. However, it does have drawbacks such as borrowing, you will only be able to say your salary is your post sacrifice arrangement amount. IE £50k rather than £60k+. This link explains it in a little more detail. It sounds like this is what your husband is on?
https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye
Also, your company scheme is likely to have an IFA - use them as the chances are they can provide all the 'guidance' needed rather than full on advice which will cost you money. Hope this helps!
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not always true.
Some lenders take int acct the figure before salary sacrifice. So you can use the larger salary figure0 -
not always true.
Some lenders take int acct the figure before salary sacrifice. So you can use the larger salary figure
Not that I have seen - although mortgages are now based on NET pay basically so however you make your pensions contributions you should not be penalised.
Paid off all Catalogues 10.10.20140 -
Thanks very much jem16 that's a great help.
We're not likely to be moving Brightspark87 so the salary issue for borrowing isn't an issue. I do worry about the death in service benefit but his provision is still quite generous so I think I'd still be alright. We may do it for a few years just because while the tax return will still have to be done it would make budgeting simpler.0 -
My salary sacrifice scheme explicitely states the death in service and other similar earnings related benefits are based on the salary before the sacrifice. They refund employee contributions in the event of death in service plus an additional amount representing the value of employees contributions which have been paid by salary sacrifice and so are not, technically employee contribution.I do worry about the death in service benefit0
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