SIPP contributions and child benefit threshold

mrje103

I was hoping for some advice/confirmation on my understanding of the child benefit threshold and contributions to a SIPP.

I have recently been given a promotion with a decent pay rise, meaning I will shortly be earning approx £64,000 p.a. The downside is that this means I will now have to pay back all the child benefit my wife and I receive, as I am now fully over the tapered threshold.

As I understand it though, if I contribute to a SIPP I can potentially keep receiving the full child benefit. But I would need to pay in £14,000 to bring my net salary down to £50,000. Is my understanding of this correct?

Secondly, I am keen to understand how this is calculated. Do I need to pay in the full £14,000 into a SIPP before the 40% relief, or can it include this? By that I mean , can I contribute £10,000 myself and then benefit from the 20% relief paid directly in to the SIPP plus the additional 20% in tax relief claimed back on my tax return (as 40% payer) each year to make the £14,000 up. Will this count as contributing the full £14,000, enabling me to keep the full child benefit?

A second question I have, linked to this, is – can the additional 20% you can claim back on a tax return if you are a 40% tax payer be ‘rolled over’ and count towards next years contribution. What I mean by this is, as I understand it, this additional 20% is claimed back as a tax relief on your salary but you do not have to pay it into a SIPP. So, in theory, could I keep the £2,000 and pay it in the following year, meaning my contribution would be £12,000 and my 40% relief would then be £4,800 etc.

Grateful for any comments on the above. If I have misconstrued something do please say so.
I suspect I have misunderstood something on the second point and stand ready to be corrected.

Many thanks!

SonOf

You may wish to change your font as your post is difficult to read on larger, high-resolution monitors.

As I understand it though, if I contribute to a SIPP I can potentially keep receiving the full child benefit. But I would need to pay in £14,000 to bring my net salary down to £50,000. Is my understanding of this correct?

It doesn't need to be a SIPP. Any pension will do. And its gross income that matters. Not net.

Secondly, I am keen to understand how this is calculated. Do I need to pay in the full £14,000 into a SIPP before the 40% relief, or can it include this?

Pension contributions should be treated as gross. not net.

A second question I have, linked to this, is – can the additional 20% you can claim back on a tax return if you are a 40% tax payer be ‘rolled over’ and count towards next years contribution.

If that is what you want to do then yes. Each contribution you make is individual.

Remember, pensions work on gross contribution just as your income is gross.

xylophone

See https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/reduce-high-income-child-benefit-charge/

https://www.gov.uk/child-benefit-tax-calculator

A second question I have, linked to this, is – can the additional 20% you can claim back on a tax return if you are a 40% tax payer be ‘rolled over’ and count towards next years contribution. What I mean by this is, as I understand it, this additional 20% is claimed back as a tax relief on your salary but you do not have to pay it into a SIPP. So, in theory, could I keep the £2,000 and pay it in the following year, meaning my contribution would be £12,000 and my 40% relief would then be £4,800 etc.

Relief is normally given through the tax code such that the threshold at which you pay tax at the lower rate is raised (extending basic rate band).

The relief relates to contributions in the tax year the contribution is made.

See

https://www.aegon.co.uk/support/faq/pension-technical/claiming-tax-relief-pp-faq.html

MallyGirl

do you have salary sacrifice as an option? it is much easier then

mrje103

Apologies but i don't understand the points on gross v net income (i am pretty ignorant of tax related stuff, so my bad)

If it is calculated on gross income, then how does contributing extra to a sipp or other pension bring you under the threshold? Isn't gross income your salary before any deductions?

Also, 'Sonof' said it works for any pension - it doesn't have to be a sipp. I already have a defined benefit civil service pension and contribute to this 'at source'. Does this help reduce by liability for the child benefit threshold or do i need to make additional contributions to it to do this. If so, why?


Many thanks for the helpful responses. Just trying to get to the bottom of the mechanics on this.

mrje103

On the salary sacrifice point, could you expand on that? How does that work?


Many thanks.

MallyGirl

It may not help with your DB pension but I'll explain anyway.

I contribute to my workplace DC pension via salary sacrifice. You give up some of your salary in return for more pension contributions 'from your employer'.
To use your figures, I would sacrifice £14k of salary to bring me down to the £50k threshold for child benefit.
I would pay income tax and NI on the £50k.
£14k would go into the pension, nominally from the employer, along with any matched employer contribution. Some employers even give some of all of the NI that they save.
I would therefore pay less tax, less NI and retain child benefit.

xylophone

With regard to pension tax relief, be careful not to get confused.

Your CS DB pension operates "net pay".

A SIPP (or other personal pension operates "relief at source"

https://www.gov.uk/workplace-pensions/managing-your-pension

The contribution to a CS DB pension is taken before tax is deducted so gross - and thus whether a person is a basic or higher rate tax payer, he receives the correct amount of tax relief.

If you were contributing to a personal pension and wanted to contribute eg. £10,000, you would pay the provider £8000 and the provider would claim £2000 from HMRC, thus "grossing up" the contribution to £10,000.

A higher rate tax payer would need to apply to HMRC for an adjustment to his tax code in respect of this contribution because only basic rate relief is given through the personal pension.

If your income after deduction of your CS pension contribution is still higher than £50,000, then you reduce it to £50,000 by making a pension contribution to the personal pension.

Rather than opening a personal pension you might look into

https://www.civilservicepensionscheme.org.uk/members/civil-service-added-voluntary-contributions/additional-voluntary-contributions/

https://www.civilservicepensionscheme.org.uk/members/buying-added-pensions-and-epa/

when the "net pay" relief would be used.