Child Benefit & Higher Rate Tax

hunmoss

I have 4 children and get child benefit for all of them as they are young and are all still at school.
I currently earn including a yearly bonus earn just below 40% bracket. In 2013 the child benefit is to be abolished for higher rate tax payers. If i get another pay rise i will be in that bracket. Roughly speaking i normally get a £1000 rise putting a net £40 a month in my pocket. However i would then stop getting the £260 a month child benefit that i receive. In a nutshell its not worth getting a pay rise unless my company give me a £6k pay rise to come out the same and thats not going to happen so where is the incentive to try hard and better myself and to help the economy.:mad:
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silvercar

AFAIK you could increase your pension contribution to avoid moving into the higher rate tax bracket and then keep your CB.

xylophone

http://moneyfacts.co.uk/news/pensions/pension-contributions-could-preserve-child-benefit/

zagfles

There are likely to be easy ways round it for instance pension contributions as mentioned, or gift aid etc. But nobody knows yet as the govt seem slow in getting the draft leglislation for this published - it's supposed to come into effect in Jan 2013 so I'd have thought it'd have to be in the 2012 finance bill, and most of the draft legislation for stuff already announced has been published, and this was announced in Oct 2010. Can't see anything about it here yet:

http://www.hm-treasury.gov.uk/finance_bill_2012_consultation.htm

I still doubt this will go ahead as planned...

hunmoss

Many thanks for your help, however with the cost of inflation running around 5%, gas and electric higher, petrol higher, season ticket up 8%, reduction in child tax credit which i have now lost (no help towards nursery fees for my youngest) really cant afford a decrease in take home pay now so hands would appear tied.

WestonDave

Question is whether you can afford to lose the £40 per month payrise or the £260 per month child benefit. Its surely more sensible to put the £40 into your pension (and in fact it would cost less than this after tax releif) than to lose £220 net by not doing so. You will also probably find that tax allowances change slightly due to the LibDems pushing for moves towards a £10k tax allowance, so you might find that you aren't as far off as you think. I'm sure nearer the time (bearing in mind its still 12 months away) there will be various calculators and help available. If its marginal - i.e. £10 per month would mean losing the CB, then even giving it to charity under gift aid would make more financial sense than losing the CB.

jem16

hunmoss wrote: »

Many thanks for your help, however with the cost of inflation running around 5%, gas and electric higher, petrol higher, season ticket up 8%, reduction in child tax credit which i have now lost (no help towards nursery fees for my youngest) really cant afford a decrease in take home pay now so hands would appear tied.

How much above the £42,475 higher rate tax band are you? If not much it might be worth the extra pension contribution to save the child benefit.

Lovelyjoolz

Are you able to take advantage of the childcare voucher scheme? If your children use any form of childcare, including after school clubs, but not including granny looking after them, you can have up to £243 per month paid directly to the provider from your net salary. This would effectively reduce your net salary by £243 (keeping you out of the 40% bracket) and you also save the tax and NI on the £243.

Its a very simple scheme to operate and your employer should offer it.

Hope this helps.

Lovelyjoolz

jem16 wrote: »

How much above the £42,475 higher rate tax band are you? If not much it might be worth the extra pension contribution to save the child benefit.

Where do you get £42,475 from? As far as I know, the 40% tax bracket starts at £35,001 currently, and will start at £34,371 from April this year.

hunmoss

I am about £500 below the limit, i pay 5% of my salary into a pension scheme through work but pay tax on my basic salary. I do not pay AVC on my bonus.
I used to claim help towards nursery costs through child tax credit but now they have reduced the level i no longer qualify.
What is the Childcare Voucher Scheme and not sure what you mean "Its a very simple scheme to operate and your employer should offer it."
Thanks

alleycat`

Lovelyjoolz wrote: »

Are you able to take advantage of the childcare voucher scheme? If your children use any form of childcare, including after school clubs, but not including granny looking after them, you can have up to £243 per month paid directly to the provider from your net salary. This would effectively reduce your net salary by £243 (keeping you out of the 40% bracket) and you also save the tax and NI on the £243.

Its a very simple scheme to operate and your employer should offer it.

Hope this helps.

The tax relief on childcare vouchers changed in 2011.
If you weren't in before april (i think).

The pension seems like the best place to put the circa £40 a month extra (to my eyes).