Thinking ahead

ent_moot

Hello,

My wife and I are planning to have our first child in the next few years, at which point she will stop working. I was wondering if there is anything, (tax-related or otherwise) that we should be taking advantage of, bearing in mind that I am a relatively high earner (80k).

It seems rather bizarre to me that, if we weren't married, presumably she would be able to claim child benefits but because we are married and I'm a high earner, she can't.

CLAPTON

get your idea house
clear all debt
build up some saving
vote for the right party

grey_gym_sock

the child benefit clawback is not specifically to do with being married: it also applies to unmarried couples living together.

you could retain the child benefit by contributing £30k a year to a pension (if your gross taxable income is £80k). the child benefit doesn't make a huge difference to the attractiveness of pension contributions in this case - it is more dramatic for somebody earning £60k who contributes £10k to a pension, especially if they have more than 1 child - but 40% tax relief on contributions is generally worth having, and the child benefit would push the effective relief up to c. 43%.

booksurr

median income was £21,000 pa before tax in 12/13 and £18,700 after tax (most recent data available).

Therefore on a household income of 80k you are a perfect example of why child benefit is withdrawn given your income is nearly double that of the median household, even after your wife stops working.

there is nothing short of the advice given above re 30k pension which will get you below the 50k threshold to re-entitle you to benefit

also, as a higher rate taxpayer, you are prevented from your wife transferring part of her personal allowance over to you when, presumably, she ceases to be a taxpayer.

Have you reviewed what money is solely in her name so that only she will be liable to tax on it? Perhaps time to maximise "her" savings so they are not part of your own or a joint account tax liability

Innys1

booksurr wrote: »

median income was £21,000 pa before tax in 12/13 and £18,700 after tax (most recent data available).

Therefore on a household income of 80k you are a perfect example of why child benefit is withdrawn given your income is nearly double that of the median household, even after your wife stops working.

there is nothing short of the advice given above re 30k pension which will get you below the 50k threshold to re-entitle you to benefit

also, as a higher rate taxpayer, you are prevented from your wife transferring part of her personal allowance over to you when, presumably, she ceases to be a taxpayer.

Have you reviewed what money is solely in her name so that only she will be liable to tax on it? Perhaps time to maximise "her" savings so they are not part of your own or a joint account tax liability

Absolutely.

The OP should be grateful for what they have rather than looking at others and wanting what they have even though, overall, they are streets ahead.

ent_moot

The OP should be grateful for what they have rather than looking at others and wanting what they have even though, overall, they are streets ahead.

Don't get me wrong, I am extremely grateful for my job and I always work on the assumption that, tomorrow, I could be on an average pay salary.

I'm not for one minute going to paint a picture of the "struggle" to survive on an 80k salary as that would be ludicrous. However, after tax and a very modest pension payment, an 80k salary equates to 4k per month. We live in a modest mid-terrace house, and pay a mortgage of 3k per month (London is expensive!). We shop at Lidl, we have one car which is old and beaten up. I can assure you that 80k does not equate to a dream home and a luxurious lifestyle in London.

Even so, I'm fully aware that we are extremely blessed, and the amazing salary I'm on allows us to plan for the future IF we are careful.

I'm not "looking at other wanted what they have", I am doing the responsible thing for my family which is to ensure that I'm not discarding money that I am entitled to. It sounds like I am not, so all is well.

beefturnmail

OP - don't worry about some of the other posters - a lot of jealousy\soapbox shouters on these forums unfortunately.

Does your wife want to give up work entirely? Depending on whether your circumstances allow, you could explore the possibility of reducing your hours and taking on some of the childcare yourself, allowing your wife to work part time. This would mean you would pay less tax as a couple (since your wife can earn ~£10k tax free and then pays 20% up to ~£45k, whereas you pay 40% on everything over ~£45k). If you reduced your hours enough, you could claim some child benefit though given that you earn £80k you would need to go down to 3 days to come under £50k (but you could combine a reduction in hours with a pension contribution).

Longer term, there are tax allowances for paid childcare

kidmugsy

Have ready cash on standby so that if the Budget announces any imminent cut in the tax relief on pension contributions you can take advantage of the old rate. In fact, open a personal pension of some sort now, with £100 or whatever your preferred provider's minimum is, so that you can contribute instantly by debit card on Budget day should you need to.

Any pension contributions you make now, while you are both flush, are pension contributions you won't feel the need to make when your finances are more stretched in future.