Increase Pension Contributions To Keep Child Benefit

David_Hirst

Many thanks for ther link. I registered and amended the Details for this year accordingly.
I will contact HMRC by phone to discuss the previous years.
Thanks again for your help.

ChopperST

Having maxed out this years ISA allowance I am resurrecting my thread in the hope that someone can check my figures prior to me contributing to a SIPP;

My income is as follows;

Main Role - Net (Minus pension cont and childcare vouchers) = £42510
Secondary Role - Gross (No pension cont) = £9330
Profit from self employment = £4000

This gives me an adjusted net income of £55840 if my calculations are correct?

Does this mean I have to pay £5840 into a SIPP to avoid deductions on the child benefit or do I take into account 20% tax relief and pay £4672?

Thanks in anticipation.

bigadaj

Calculations are best and easiest done gross, so should be the £5850 figure.


Assuming you're in England there's also another £5k of 40% tax relief going begging if you can afford it.

Dazed_and_confused

Money you actually pay into a SIPP is the net amount before tax relief is added. So if you pay £4000 your gross payment is actually £5000.

You need to include all taxable income in the ANI calculation so if you have savings interest (ignoring non taxable things like ISA) or dividends then this needs to be included in your calculation.

ChopperST

Dazed_and_confused wrote: »

Money you actually pay into a SIPP is the net amount before tax relief is added. So if you pay £4000 your gross payment is actually £5000.

You need to include all taxable income in the ANI calculation so if you have savings interest (ignoring non taxable things like ISA) or dividends then this needs to be included in your calculation.

I have the usual regular savers / current accounts earning £490 a year interest - it is my understanding that I can earn £500 as a higher rate tax payer before paying tax? So do I need to include this in my calculations as I am under the threshold to pay tax on this amount?

Dazed_and_confused

You are getting having to pay tax and having taxable income mixed up.

As a higher rate payer you will get a maximum of £500 savings interest which will be taxed at 0% (confusingly this is called the Personal Savings "Allowance" but it's actually a tax rate band).

But you still have an extra £490 taxable income so your ANI is £490 higher and therefore you would, subject to SIPP contributions, have a greater Child Benefit charge to pay.

The phrase "tax-free" really only relates to ISAs and the like, all interest which was taxable pre the introduction of the Personal Savings Allowance is still taxable.

ChopperST

Dazed_and_confused wrote: »

You are getting having to pay tax and having taxable income mixed up.

As a higher rate payer you will get a maximum of £500 savings interest which will be taxed at 0% (confusingly this is called the Personal Savings "Allowance" but it's actually a tax rate band).

But you still have an extra £490 taxable income so your ANI is £490 higher and therefore you would, subject to SIPP contributions, have a greater Child Benefit charge to pay.

The phrase "tax-free" really only relates to ISAs and the like, all interest which was taxable pre the introduction of the Personal Savings Allowance is still taxable.

Sorry yes I was confusing my taxable income. So to make it simple any interest from cash savings I should also divert to my SIPP to maintain my ANI under the £50k threshold and retain my child benefit. I have a modest investment portfolio of funds but these are all held within an ISA.

I really do appreciate everyone's help, thank you all.

Dazed_and_confused

So to make it simple any interest from cash savings I should divert to my SIPP to maintain my ANI under the £50k threshold and retain my child benefit.

To be clear nothing will prevent you having the £490 additional taxable income if you have already earned it but you can influence your ANI by your SIPP payments (or gift aided charitable payments which work in a similar way) however i don't think there has to be any link between the interest and how you fund the SIPP

ChopperST

Dazed_and_confused wrote: »

So to make it simple any interest from cash savings I should divert to my SIPP to maintain my ANI under the £50k threshold and retain my child benefit.

To be clear nothing will prevent you having the £490 additional taxable income if you have already earned it but you can influence your ANI by your SIPP payments (or gift aided charitable payments which work in a similar way) however i don't think there has to be any link between the interest and how you fund the SIPP

Sorry didn't word my reply correctly.

As my savings interest will influence my ANI in the same way as any other income would I will divert that amount to the SIPP also to keep my ANI under the £50k figure.

Dazed_and_confused

Makes sense.