Pension tax relief/childcare vouchers/child benefit

sjoh0961

Hi all.

I am trying to work out how the new allowances affect me and it seems very complicated.

I earn about £60k, and now higher rate tax only kicks in at £50k, obviously.

If I pay just over £10k into my pension, I go below £50k for the purposes of the 'High Income Child Benefit Charge', which means my wife can keep the full child benefit. I am confident that I am correct on that.

First question is, am I still a higher rate taxpayer? I will earn enough, gross, to pay higher rate tax, but I don't think I would actually pay any in the circumstance described?

Following on from that, would I still get pension tax relief at 40% (I am PAYE, so all deducted from gross pay)?

Final question: if I don't pay higher rate tax, can I now claim childcare vouchers at the basic rate taxpayer level (i.e. can I now claim more vouchers)? If so, how do I achieve that? As I'm on PAYE, I presume my employer will still only pay me the lower amount for higher rate taxpayers, as they will base it on my gross income?

Thanks for reading and for any suggestions.

Tim

Paul_Herring

Following on from that, would I still get pension tax relief at 40%

You only ever get 'relief at 40%' on contributions from wages that are actually taxed at 40%. It's only 20% after that. (You don't simply get 40% on all contributions just because part of them were taxed at that.)

(I am PAYE, so all deducted from gross pay)?

But that sounds like salary sacrifice, which happens before tax is taken off, therefore no relief is due to begin with.

sjoh0961

Paul_Herring wrote: »

But that sounds like salary sacrifice, which happens before tax is taken off, therefore no relief is due to begin with.

OK, thanks, that sorts one misunderstanding.

So does that make the other questions irrelevant?

If my PAYE earnings are taken below £50k by pension contributions, I will qualify for full child benefit and the larger amount of childcare vouchers, because I will be a 20% rate taxpayer?

Sorry for supplementary question, but what if my main employer pays me the larger value of childcare vouchers, as I am a 20% rate taxpayer, but then income from other sources takes me over the threshold? What mechanism exists to either prevent that, or to allow me to pay them back?

Thanks again,

Tim

Funkyfreddy

Paul_Herring wrote: »

But that sounds like salary sacrifice, which happens before tax is taken off, therefore no relief is due to begin with.

Not necessarily contributions into many schemes will be deducted from Gross Pay in that period and reflected in Taxanle Pay on which income tax is calculated.

Doesn't have to be a salary sacrifice scheme.

FF

Funkyfreddy

sjoh0961 wrote: »

I earn about £60k, and now higher rate tax only kicks in at £50k, obviously.

If I pay just over £10k into my pension, I go below £50k for the purposes of the 'High Income Child Benefit Charge', which means my wife can keep the full child benefit. I am confident that I am correct on that.

First question is, am I still a higher rate taxpayer? I will earn enough, gross, to pay higher rate tax, but I don't think I would actually pay any in the circumstance described?

What's your tax code ?

£60k Gross less £10k pension equals £50k Taxable Pay. You have your personal allowance with any adjustment to deduct too. If you have the standard tax code of 1250 that would give taxable pay on which income tax is calculated of £37,500

First the current 2019/20 Tax Year income tax would be due at 20% into £37,500 and 40% above.

On that calculation your pension contributions would benefit from tax relief at 40% with your remaining income taxes at 20%.

FF

sjoh0961

Funkyfreddy wrote: »

What's your tax code ?

£60k Gross less £10k pension equals £50k Taxable Pay. You have your personal allowance with any adjustment to deduct too. If you have the standard tax code of 1250 that would give taxable pay on which income tax is calculated of £37,500

First the current 2019/20 Tax Year income tax would be due at 20% into £37,500 and 40% above.

On that calculation your pension contributions would benefit from tax relief at 40% with your remaining income taxes at 20%.

FF

Thanks.

I'm pretty sure that higher rate tax now kicks in at £50k (12.5 + 37.5), so if I get my taxable pay down to £50k, through extra pension contributions, then I get myself out of higher rate tax, and my wife gets to keep all of her child benefit.

Any ideas about the childcare vouchers?

Thanks again,

Tim

Funkyfreddy

If your Pension contributions bring your taxable pay to below £50k you would not be affected by the Child Benefit tax charge afaik.

The higher rate of 40% income tax is due on taxable income on which tax is calculated above £37,500 in the 2019/20 tax year.

The £50k figure mentioned assumes a tax code of 1250 is being used to give £12,500 personal allowance. This may of course be adjusted for many reasons due to benefits, underpaid tax, allowances, overpaid tax and so on. You may even have a k code.

Having taxable pay of £50k with a tax code of 1050 would put £2k above the higher rate threshold.

ChopperST

Childcare vouchers reduce your ANI. Presumably you are taking £124 a month pre-tax via your employer so your ANI is reduced by £1488 per annum.

You then need to pay £8512 (£7094 net) grossed up to your pension to bring your ANI down to £50k to avoid the higher rate child benefit charge, this will also take you out of the 40% tax bracket as a bonus. Remember any savings income etc. also counts towards your ANI so factor that into your calculations.

sjoh0961

ChopperST wrote: »

Childcare vouchers reduce your ANI. Presumably you are taking £124 a month pre-tax via your employer so your ANI is reduced by £1488 per annum.

You then need to pay £8512 (£7094 net) grossed up to your pension to bring your ANI down to £50k to avoid the higher rate child benefit charge, this will also take you out of the 40% tax bracket as a bonus. Remember any savings income etc. also counts towards your ANI so factor that into your calculations.

Thanks. I think that means that, bizarrely, if I take more childcare vouchers, it will make it easier to get my ANI below £50k, which will mean I get to keep more/all of my child benefit.

Just need to work out how to get my employer to give me the full amount of childcare vouchers now.

Still wondering if anyone knows what happens if you get the £243/month expecting to pay 20% tax and then accidentally stray into 40% tax band...?