Child Benefit & Higher Rate Tax

hunmoss

sorry a little confussed, the rate at which i pay tax is based on my earnings not net of pension contributions, i have no control over this. So basically getting back to my original post however you look at it i cant earn anymore otherwise i will lose the CB. I'm sure there will be changes to the system before 2013 but just preparing myself for the worse. My take home pay will have to stay the same for some time so i will have to turn down pay rises to keep the CB which is worth so much more than a 2 to 3% pay rise.

jem16

hunmoss wrote: »

sorry a little confussed, the rate at which i pay tax is based on my earnings not net of pension contributions, i have no control over this.

The rate at which tax is due is based on your total TAXABLE income and that is what HMRC are interested in. Your employer operates a PAYE scheme which, for the most part, deals with your tax. However it cannot deal with all of it and that is where you come in. You have to tell HMRC if you are a higher rate taxpayer and have to pay extra tax on savings interest or that you wish to claim higher rate tax relief on pension contributions.

As you pay into a Group PP, you pay net contributions which as you say are 5%. So let's say your basic pay is £4000pm so definitely a higher rate taxpayer. 5% contribution on that is £200 so that comes off your salary but you are still taxed on the whole £4,000. If you look at your pension statements that £200 contribution from you will be grossed up to £250 so you are getting the basic rate tax relief from your pension provider. However as you are a higher rate taxpayer, that £250 gross contribution should only cost you £150 and not £200 as you would be entitled to higher rate tax relief of 40% on the pension contribution. You therefore have to apply to HMRC for your extra 20% tax relief of £50. That can be done via a tax return if you already complete one or, more likely in your case, by an adjustment to your tax code.

Now from what I have gathered your total income - ie gross salary, taxable benefits plus bonus puts you into the higher rate tax bracket. We haven't added any possible gross savings interest as yet so it may be more. You should be getting some higher rate tax relief on your pension contributions but you are not because you don't appear to be claiming it from HMRC.

So either do the Maths yourself and work out your total income or post the exact figures on here and we'll tell you if you are a higher rate taxpayer or not. Or pm me the details if you'd rather not post the figures.

My take home pay will have to stay the same for some time so i will have to turn down pay rises to keep the CB which is worth so much more than a 2 to 3% pay rise.

Sorry but that doesn't make sense.

If you can turn down that 2%/3% pay rise then pay that 2%/3% into the pension, keep the CB and you're a winner all the way. You get CB plus a boost to your pension instead of just CB.

JimmyTheWig

jem16 wrote: »

So either do the Maths yourself and work out your total income or post the exact figures on here and we'll tell you if you are a higher rate taxpayer or not. Or pm me the details if you'd rather not post the figures.

Or just phone up HMRC and give them the figures.

Sorry but that doesn't make sense.

If you can turn down that 2%/3% pay rise then pay that 2%/3% into the pension, keep the CB and you're a winner all the way. You get CB plus a boost to your pension instead of just CB.

The point is they'll be worse off this time next year than they are now. Pay will be the same (because payrise has gone into pension) but inflation will mean that's worth less.

jem16

JimmyTheWig wrote: »

The point is they'll be worse off this time next year than they are now. Pay will be the same (because payrise has gone into pension) but inflation will mean that's worth less.

Yes I realise the effect it will have on pay.

However the OP was planning on not taking any pay rise which will still mean pay will be the same.

At least taking the pay rise and paying it into the pension will mean you have gained something which will improve your retirement.

JimmyTheWig

I agree...

zagfles

WestonDave wrote: »

As I understood it, everyone will still get it. Those who are clearly over the limit will be recommended to decline it. Those who are borderline will have it taken back as an additional tax if when their taxes are calculated they are over the limit. However whether that can work in practical terms without creating a mammoth amount of admin remains to be seen. Although the anomaly whereby one family on £80k joint would get it whereas another on £50k sole income don't is clearly unfair, the admin involved in looking at family incomes would be even worse, with all sorts of implications like data transfer from one individuals records to another.

Yes. Everyone, including the media, seem to be assuming that it'll be cliff edge - £1 over the HRT threshold and you lose all the child benefit. But this is very unlikely to be the case - the govt haven't said much about how this is going to implemented but they have said it'll be done via the tax system and nobody will be prevented from claiming - but if they do it'll be withdrawn via tax.

Doing it this way means it's very easy to have a taper, maybe similar to the personal allowance taper that pensioners and those earning over £100k have. Eg £1 of CB withdrawn for every £2 into HRT. The last govt did this with the old Children's Tax Credit where it was withdrawn gradually once over the HRT threshold.

I doubt very much the scenario everyone is talking about will happen where a small payrise could mean a big drop in income due to sudden loss of all CB.

blisteringblue

Another one in the same bracket and I hope they do announce how it will work very soon.

I have added complication of a company car, so this brings my 40% threshold down to under 39k however my 8% pension sacrifice takes me nicely under, but like others if company hits plan I get a 15% bonus which takes me over again.

It's all a conundrum really. In my case I will have to sacrifice 80% of my bonus to keep Child Benefit.

I guess over the long term it is in my interest to do this and not get used to spending the bonus. We got nothing for a couple of years so it will go back to that.

Or maybe increase my pension contribution to 10% over the year and keep a little more of the bonus in August.

Whichever way I'm only a few thousand over the threshold with the bonus, so if it does turn out to be a tapered system rather than a cliff edge it might work out better to keep the CB but lose a little due to extra taxation? Who knows.

I know I'm not losing the 80% of my bonus as it is in my pension pot, but it will take a bit of mental brain power to not consider it a loss when I am forking out for a holiday not covered by my bonus.

Naughty_Noonoo

I have calculated that with 2 children it is even worth going over the 40% threshold by £3020 and paying it into a pension scheme.

If you don't then you will lose £1750 per year in Child Benefit.

If you do pay the £3020 into a pension then you would reduce your earnings after tax by £1750. However, the Child Benefit would still be payable and you would have £3020 in a pension.

Even by going even further over the 40% threshold, you have got to ask yourself is it actually worth losing child benefit when you can simply use this unfair policy as a springboard to boost your pension.

You will be worse of in 2013 either way!

ukjoel

I am in the 40% bracket with 3 kids. My wife gets the £180 a month which is spent on them for shoes, clothes, swimming etc. We like many are hovering above the bracket with one income while the other remains well below it due to part time working which barely covers the childcare for those hours (all kids below school age - only one is old enough for 15 hours free).

I am not prepared to lose this money which for me to earn pre tax would mean earning 4k. I am preparing to take the following steps.
Cancelling our private healthcare through work - benefit to me 2k - cost to govt of 5 more people relying on the NHS.
Changing the 3 series for a Fiesta (or if work allow cancelling the company car altogether and claiming a higher milage rate for a personal car). Personal sacrifice I will make but the tax lost to govt on a new 35k car every year will be substantial.
Pension overpayments as required to get to below 40%. Again this means less money for the govt to tax and I think I will need to overpay by 5k -10k which will lose the govt 2k-4k in tax.

While this will make things tough for us financially we have decided the benefits of stacking the pension and keeping the child benefits make it worth it. The nice car, family holiday, and the weekly takeout will all go.

These are my figures and thoughts and while some may say this is extreme the govt calcs on their £1 billion pound saving are based on current stats and dont take into account all the people who will change their circumstances to avoid this. I think the actual savings will be far far lower but their figure of 800,000 impacted families or as I like to see it 1.6 million angry voters at the next election. This is why we havent seen any clarity on this act yet. Its because they are running scared. The benefits limit of 35k which seemed a far easier sell has been pushed back by the Lords and I think they will really strugle with this one.