Increase Pension Contributions To Keep Child Benefit

ChopperST

I have been trying to do my own research to find the answer to my question but the advice in various forums is quite convoluted.

Basically our situation is we already have a child (almost 2) and our second is due in 3 weeks. I am a higher rate tax payer with a PAYE income from the NHS of £57k plus a self employment income of £6k-£7k pa. I also receive interest on savings outside of ISAs of around £1k pa so £500 above the savings allowance. I already subscribe to the NHS pension scheme and contribute 12% of my salary. I have a modest S&S ISA portfolio. I salary sacrifice £1488 of my salary pa for childcare vouchers for our son.

We are in receipt of child benefits for our first child and will claim them for the second in my wife's name who has now started 12 month maternity leave. She is considering not returning to work after this. Last year I paid them back during my self assessment as I was over the £50k threshold.

My question is would I be able to contribute to a SIPP to reduce my income so I did not have to pay back the child benefit for both children?

I understand we have a good income as a family and would politely ask for no comments regarding the morality of this, just practical advice regarding the pro's and con's of doing so. I have been sceptical regarding a SIPP in view of the potential legislative changes that could occur over the next 30 years and I prefer the flexibility and liquidity ISAs bring (I appreciate I am missing out on tax relief).

stoozie1

Can I just check your pension conts as % of salary, is it not 12.5%?

Can you explain whether you've deducted your pension conts and ccare vouchers already from your £57k salaried, or is that your gross salary?

stoozie1

ps have you looked at whether tax-free childcare might be better for you than the vouchers?

As a higher rate tax payer you are only getting relief on the first £124/month of your salary sacrifice.

xylophone

https://www.unbiased.co.uk/news/2013/12/4/how-to-avoid-the-child-benefit-tax-charge

ChopperST

Thanks for taking time out to reply stoozie.

stoozie1 wrote: »

Can I just check your pension conts as % of salary, is it not 12.5%?

Can you explain whether you've deducted your pension conts and ccare vouchers already from your £57k salaried, or is that your gross salary?

Sorry my pension contributions are 12.5% (I have recently moved up a bracket due to a pay rise). I don't know if it makes any difference but I have two NHS incomes, one as a full time clinician and one as a co-opted member of my local CCG on an advisory role.

I have not deducted my child care vouchers or pension contributions so £57k is my gross.

stoozie1 wrote: »

ps have you looked at whether tax-free childcare might be better for you than the vouchers?

As a higher rate tax payer you are only getting relief on the first £124/month of your salary sacrifice.

I was not aware of the tax free scheme - I assume it is this one?

https://www.gov.uk/government/news/tax-free-childcare-10-things-parents-should-know

stoozie1

I probably sounded really Big Brother then but my OH is in your line of work so the 12% jumped out at me!

You look to be on the salary quoted as close to being likely to hit your lifetime allowance which might affect how you see an additional pension contribution at this stage, are you in the 2015 scheme and do you have any years stored in the 1995 scheme?

stoozie1

just spotted your edits, yes, that's the tax-free childcare I meant. Martin has a good infographic for comparison:

http://www.moneysavingexpert.com/family/tax-free-childcare

janed9388

watching with interest as I am in a very similar position, I have almost decided to use the SIPP option - my question is if I do decide to pay into a SIPP - is it the day the payment is made that is important for the tax year or the day it goes out of my account ? I just topped an ISA up by debit card and it took almost a week to go through (hence the question)

sorry to hijack your thread.

ChopperST

stoozie1 wrote: »

I probably sounded really Big Brother then but my OH is in your line of work so the 12% jumped out at me!

You look to be on the salary quoted as close to being likely to hit your lifetime allowance which might affect how you see an additional pension contribution at this stage, are you in the 2015 scheme and do you have any years stored in the 1995 scheme?

Don't worry it didn't come across so.

Yes I have contributions in both schemes annoyingly our ESR is down for maintenance so I can't check how much I have in each and I'm not at home to check my paper statements.

stoozie1

How much do you reduce your 5-7k self-employed by by using deductibles such as professional costs, home as office etc?

Number75

I am doing this.

In 2016/2017 I made a lump sum payment in March 2017 to a personal pension, calculated to bring my salary after work and private pension contribution (and salary sacrifice CCVs) to under £50K. I then called HMRC to back claim the year (you can claim two years back) and had £1000 in my account 7 days later. I'll need to wait for P800 time to get the additional 20% relief as there's no time left in this tax year to adjust my tax code.

For 2017/18, I'll be contributing more evenly through the year, so I have re-activated CB payment rather than back claim. Also I've spoken to HMRC to have my tax code adjusted to get the extra 20% relief as I go.

Pros... I'm gaining about a grand a year in CB.

Cons... I'm locking money away in my pension but:
- that's a good deal for me anyway with the tax relief
- I'm of an age (mid 40s) where I'm keen to increase pension anyway. The gain of CB is actually is a welcome side effect not the key driver