Child benefit threshold / increasing pension contributions

Spidernick

atush wrote: »

Plus the 1K CB.

Which means put 6K into pension and get 11K total in pension and CB.

With three kids the Child Benefit is almost exactly a nice round £2,500, meaning a £25 claw back on each complete £100 over £50K, so 25%. As such, for the £50K to £60K bracket there is effectively a 67% loss (40% tax, 2% NI and 25% child benefit claw back - so even worse than the 62% suffered by those hit by the loss of the personal allowance over £100K of earnings), which makes pension contributions a 'no brainer'.

In the example above the £10K going into the pension pot effectively only costs £3,300 (if done under salary sacrifice with NI saving, £3,500 otherwise), possibly better still if the employer matches some of this and/or shares their 13.8% NI saving with you.

Triumph13

Yep, child benefit clawback is an absolute pain. I have had to do some serious juggling of pension contributions. My 1 day a week consulting gig, after I retire in October, would otherwise have been hit by 40% tax, 12% NI and 18% CB clawback (2 kids). I would not have been prepared to do the work just to hand 70% of the wages to HMRC.

Spidernick

Triumph13 wrote: »

Yep, child benefit clawback is an absolute pain. I have had to do some serious juggling of pension contributions. My 1 day a week consulting gig, after I retire in October, would otherwise have been hit by 40% tax, 12% NI and 18% CB clawback (2 kids). I would not have been prepared to do the work just to hand 70% of the wages to HMRC.

Sorry, but that is probably incorrect. When you reach the level of paying 40% tax you are paying 2% NI, not 12% (unless you have something like £30K in rental profits and then £30K PAYE earnings, when that would apply), so the total hit would be 60%, rather than 70% (so still worth avoiding).

https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions

EDIT: You are including pension income in 18/19 in this possibly, in which case you could well be correct. On the bright side, there is no NI on pension payments (yet!)

mightbedave

Spidernick wrote: »

With three kids the Child Benefit is almost exactly a nice round £2,500, meaning a £25 claw back on each complete £100 over £50K, so 25%. As such, for the £50K to £60K bracket there is effectively a 67% loss (40% tax, 2% NI and 25% child benefit claw back - so even worse than the 62% suffered by those hit by the loss of the personal allowance over £100K of earnings), which makes pension contributions a 'no brainer'.

This is exactly my situation. 3 kids and earning over 60k so it is a no brainer to pay more into my pension with effectively a 67% marginal rate of tax between 50-60k. Only issue is, with 3 kids I could really do with the cash now rather than when I am retired!

blisteringblue

mightbedave wrote: »

This is exactly my situation. 3 kids and earning over 60k so it is a no brainer to pay more into my pension with effectively a 67% marginal rate of tax between 50-60k. Only issue is, with 3 kids I could really do with the cash now rather than when I am retired!

This was the situation I was in, but with only 1 child the child benefit was the one to give way. I'm already having to watch LTA limits in the run up to my retirement in 4 years so as much as it pains me 40% tax now and more wages was worth more than £80 a month.

Difference in take home would be close to £500 a month to keep the benefit and then heaven forbid the extra pushed me over LTA then it's 50% tax on the flip side.

To be honest been over 12 months without so can't say we notice now, although still paying some back as they work in arrears on your tax code but should be straight for 2019/20.

xylophone

Given that we have independent taxation in the UK, that is simply not possible.

Child benefit has become a means tested benefit.

As far as I can gather from perusing the benefits board,household income is taken into account for all other means tested benefits - why should it be any different for CB?

It is surely ridiculous that a household where two parents earning £49,999.99 per annum each can receive CB while a household with one parent earning £60,000 can't?

Spidernick

xylophone wrote: »

Child benefit has become a means tested benefit.

As far as I can gather from perusing the benefits board,household income is taken into account for all other means tested benefits - why should it be any different for CB?

An interesting point and I have no idea, having never claimed other means-tested benefits. However, given that the Child Benefit claw back is calculated by reference to a tax return, I cannot see how this would be done without a lot of (expensive) additional admin, or joint taxation, as they have in the States and which is never going to happen here (it would be political suicide for any party trying to bring it back in), as the fight for Independent Taxation was a long one that was only won about 25 years ago (which is amazing to my mind).

xylophone wrote: »

It is surely ridiculous that a household where two parents earning £49,999.99* per annum each can receive CB while a household with one parent earning £60,000 can't?

That is opening up a can of worms, as you could equally argue that the dual earners get two personal allowances and 20% tax bands, compared to the sole earner only having one of each. There will always be anomalies, whatever happens and remember that the sole earner shouldn't have childcare costs (as one parent is at home), whereas the dual earners are likely to have these, unless their kids are older. They will probably also have two lots of travelling to work expenses, etc., etc. It's not black and white.

(* Being pedantic, as above, it is actually £50,099.99 )

xylophone

I cannot see how this would be done without a lot of (expensive) additional admin,

But household benefits like tax credits require claiming and admin is in place for that? And for Pension Credit? And for Income Support? And for
ESA?

So why and how is CB different?

Drp8713

Hi all,

I have a question on this that hopefully somebody can help with.

I was trying to keep my taxable income through my employer undsr £50k, however they have paid me a bonus of around £1k unexpectedly.

After all work pension contributions my taxable income will reduce from £58.5k to £50850.

I have a SIPP which I pay £50 (net) into, so thats £600 a year, I just paid an extra £40 in so grossed up thats £800, making my adjusted new income now £50050.

So as that is under £50099, that means my tax charge is back to £0, but as my income is still over £50k, will I have to fill out a tax return to show that my SIPP contributions have removed the tax liability or can HMRC see this for themselves.

Dazed_and_confused

I think you would need to file a return.

It is maybe 20 minutes work and from what you've posted you will be entitled to a small tax refund (possibly £158 or so) in respect of the higher rate tax relief due on the pension contributions.

If you don't file a return how would you get that tax relief (taking into account you are have taxable income greater than £50k and are part of a Child Benefit household)?

Also, as a MSE user it is a little surprising you don't have any savings interest income to declare?

NB. The refund assumes your tax code was correct in the first place.