Using extra pension payments to keep child benefit

TH1878

Harrumph wrote: »

Can you also pay more into a pension to reduce income to avoid paying full market rent in social housing, as has just been announced in the budget?

I really hope not.

Harrumph

I work, my husband is disabled so we were allocated a tenancy of a disabled adapted bungalow based on our income 2 years ago. The Council and the Housing Association both thoroughly assessed that we could not afford a property suitable for his needs in the private sector, to rent or buy. Our income is lower now but still over the £30,000 so miraculously seems we can now afford to pay market rent! So my question is, if I paid more into my pension would this reduce my income and hence my liability for the market rent? I should pay more into my pension anyway as my husband has very little private pension from his 20 years working before his ill health. If people who choose to have children and earn over £50k can avoid losing child benefit by changing their pension investment I think it is reasonable that we should be able to maintain our living standard and invest for our future in the same way.

Spidernick

A good way to look at the Child Benefit claw back is the effective 'tax' rate if you do nothing and let it stand.

Like you, I have three kids and the Child Benefit for this year is £2,490.80, so for every £100 you go over the £50K you lose about 24.9% just to the claw back. Add that to the 40% tax and 2% NI that gives a total of 66.9% lost. As such, to me it's a 'no brainer' to pay extra to get down to around the £50K mark, especially as I do mine via a 'smart' pension (which may be under threat in the future) which gives me NI as well as tax relief. As such, each £100 going into my pension is only costing me £33.10, and that's before taking into account any employer matching of contributions.

If you pay into a private or non-'smart' scheme then you won't get the NI relief, but 64.9% is still not to be sniffed at, so if you can afford to do so, I would say go for it! I doubt you'd be paying anywhere near that rate on retirement.

saucer

d70cw6 wrote: »

wait he has social housing and is a higher rate tax payer? O.o

...if that is a question to me, then the answer is no! I am a home owner and higher rate tax payer

saucer

Spidernick wrote: »

...As such, to me it's a 'no brainer' to pay extra to get down to around the £50K mark, especially as I do mine via a 'smart' pension (which may be under threat in the future) which gives me NI as well as tax relief. As such, each £100 going into my pension is only costing me £33.10, and that's before taking into account any employer matching of contributions.

.

Thanks Spidernick, when you put it like that it is obvious what to do.

I was thinking that I could wait until near the end of the financial year and make a contribution to a separate private pension of some sort, to bring my net pay, minus pension contributions, to the cut-off 50,000. Is that the way to do it?

Spidernick

saucer wrote: »

Thanks Spidernick, when you put it like that it is obvious what to do.

I was thinking that I could wait until near the end of the financial year and make a contribution to a separate private pension of some sort, to bring my net pay, minus pension contributions, to the cut-off 50,000. Is that the way to do it?

That would work. Once you have your March 2016 pay slip the 'Taxable year to date' figure will be the P60 amount, you can add any taxable investment income, take off Gift Aid payments, etc. to see what you are left with for the claw back and then make a pension contribution by 5 April 2016. Just remember that you make the pension payment net of 20% tax relief (and get the other 20% relief via your tax return) so if you needed £3,000 gross you pay 80% of this, so £2,400.

saucer

Spidernick wrote: »

That would work. Once you have your March 2016 pay slip the 'Taxable year to date' figure will be the P60 amount, you can add any taxable investment income, take off Gift Aid payments, etc. to see what you are left with for the claw back and then make a pension contribution by 5 April 2016. Just remember that you make the pension payment net of 20% tax relief (and get the other 20% relief via your tax return) so if you needed £3,000 gross you pay 80% of this, so £2,400.

...sorry for being dense but can you run that by me again...say my income after pension contributions at source and gift aid etc is 53000, do I claw back £3000 or £2400 - put £3000 in the pension or £2400?

Spidernick

You pay a net payment of £2,400, which equates to a gross payment of £3,000 with 20% relief at source. You get the other 20% relief (another £600) via your tax return and your income for the purposes of the Child Benefit claw back is then £50,000 so the claw back is zero, saving you £747.24 (i.e. 30% of the total child benefit that would otherwise be lost). Your £3,000 pension contribution has cost you a mere £1,052.76, or a little over 35% of the total. Not a bad day's work I would argue!

xylophone

https://www.gov.uk/child-benefit-tax-calculator

http://www.thisismoney.co.uk/money/pensions/article-2192562/Trick-avoid-losing-child-benefit-boost-pension.html

may assist.

saucer

Spidernick wrote: »

You pay a net payment of £2,400, which equates to a gross payment of £3,000 with 20% relief at source. You get the other 20% relief (another £600) via your tax return and your income for the purposes of the Child Benefit claw back is then £50,000 so the claw back is zero, saving you £747.24 (i.e. 30% of the total child benefit that would otherwise be lost). Your £3,000 pension contribution has cost you a mere £1,052.76, or a little over 35% of the total. Not a bad day's work I would argue!

Thank you! :-)