Increase Pension Contributions To Keep Child Benefit

ChopperST

stoozie1 wrote: »

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

Turnover is £10k, profit is between £5k-£7k after expenses so already claiming them via SA.

Triumph13

Besides agreeing with the others on this being a sensible thing to do, a couple of further points:
If your wife is considering not going back or only going back part time then look at getting some of those savings shifted into her name if at all possible.
Running the numbers, you would probably need to contribute roughly the amount of your self employed profits to a SIPP to keep all your child benefit. If these were £6k then the net cash cost to you, after tax relief and child benefit for 2 kids, would be only £2,524. Even if you end up hit with a 55% LTA charge that would still be a profit of £176 or 7% so I'd say you don't need to worry too much about the LTA and if there is any chance that you won't hit the LTA or that you will be a basic rate taxpayer in retirement (when LTA charge drops to only 40% if taken as income) then you are laughing.

ChopperST

Triumph13 wrote: »

Besides agreeing with the others on this being a sensible thing to do, a couple of further points:
If your wife is considering not going back or only going back part time then look at getting some of those savings shifted into her name if at all possible.
Running the numbers, you would probably need to contribute roughly the amount of your self employed profits to a SIPP to keep all your child benefit. If these were £6k then the net cash cost to you, after tax relief and child benefit for 2 kids, would be only £2,524. Even if you end up hit with a 55% LTA charge that would still be a profit of £176 or 7% so I'd say you don't need to worry too much about the LTA and if there is any chance that you won't hit the LTA or that you will be a basic rate taxpayer in retirement (when LTA charge drops to only 40% if taken as income) then you are laughing.

Thanks for taking the time to reply. Will look at diverting the funds into a SIPP.

Dazed_and_confused

ChopperST

This is quite useful regarding income limits and the child benefit charge.

https://www.gov.uk/guidance/adjusted-net-income


Remember payments to a sipp don't actually reduce your taxable income.

For child benefit purposes you have something called adjusted net income which is where the £50000 is relevant.

For income tax purposes the sipp increases the amount you can pay basic rate tax on, your taxable income doesn't change because of the sipp.

You were making things more complicated than they need to be in your op, your March payslip should have a taxable pay figure (for the whole tax year, not March in isolation) and that would be you starting point as that already takes into salary sacrifice, work pension contribution etc and you can then forget about those elements.

As you are self employed with decent profits you may not get a personal tax refund from HMRC which is a common feature/benefit of higher rate payers making sipp contributions but it could massively reduce the tax you have to pay on your overall income, same difference really, you will be £x better off it just won't necessarily be an actual tax refund

stoozie1

Dazed_and_confused wrote: »

As you are self employed with decent profits you may not get a personal tax refund from HMRC which is a common feature/benefit of higher rate payers making sipp contributions but it could massively reduce the tax you have to pay on your overall income, same difference really, you will be £x better off it just won't necessarily be an actual tax refund

what you could do though, if you usually file Dec/Jan, is to file 16/17 as soon as you have all the data and use this information to reduce your POA due July. (rather than wait til Jan/July 2018 to feel the benefit)

michaels

Could your self employed income be earned by a company as profit with your wife as the only shareholder?

David_Hirst

Hello,


Apologies for hijacking this thread but it seemed the most relevant without starting a new one:


I too am looking at increasing Pension contributions in order to reduce my net income for child benefit purposes. Can someone please confirm if employer contributions are completely discounted?


My employer (based abroad) makes a single lump sum payment of £3000 per year into my Stakeholder Pension. I also make payments of approx £60 net / £75 gross into the same Stakeholder monthly.


None of this appears on my payslip.


I will earn basic £48720 this year, plus a Bonus of £1497 which has already been paid in April 2017. I am now realising the implication of the £50k child benefit threshold (£50217).


Basically does the employer £3k payment not count toward my taxable income, and can I deduct my own approx £900 Pension contribution from the £50,207?


If so, I guess it may make sense in future to ask if my bonus can be paid as an additional Pension contribution?

bigadaj

The employer contribution seems to be a stand alone payment, so paid gross and won't impact you either positively or negatively.

If you are stating everything gross, which is the easiest option, then the £900 should come off your gross salary and mean that you are below the £50k limit. If you contribute the pension as a stand alone payment then the provider normally claims basic rate tax on top, so your actual contribution would be £1125.

The other point to make is that there is 40% tax relief on offer, which is the nest investment deal there is, if you contribute a few more thousand to get below the higher rate limit.

David_Hirst

Thank you for the reply.


I am certainly looking at increasing my Pension contributions in future to benefit more from the higher rate relief (and more importantly just to increase my Pension fund). As I am only just becoming aware of this isssue I also plan to call HMRC to try and reclaim any Portion from last year (I have never had to fill in a Self Assessment form, and assume I won't have to until after the end of this current tax year). Or would I be better filling one in voluntarily this year to help with reclaiming the 2016/2017 tax relief?


The £900 is the total gross payment I am currently making (and made last year also). I intend to increase this at least £1500 gross per year.

jamesd

It's unlikely that HMRC will ask you to complete a tax return for this. Phone call or letter will be fine.

For the current tax year you can use this online service to check that your tax code is right for your expected pension contributions. HMRC will then adjust the code to give you the tax relief during the year via PAYE.

I suggest that you do the current year first then contact them about past years once they have issued the new current year code. Then they will probably adjust it again to give you the relief from past years via PAYE this year.