Child Benefit Income Threshold £50K to £60K

NOVAMET21

Hi
The rules for the child benefit payback if one of the person in the household earn more than £50k don't seem like changing anytime soon but hopefully will change as it seems unfair.

Not only you are hit with 40 pc higher tax band but then also have to pay back if earning more than £50K. The issue here is that if a couple who earns £49K each with the total of £98K don't pay a penny back where as a couple with one person earning £60K and the other one earning £15k with the total of £75K have to pay all the child benefit back.

I have read that you can actually increase the pension contribution at work to reduce the tax threshold so that you can payback less for child benefit payment. Does anyone know how does this work and it is beneficial at all?

Thanks

calcotti

The charge is based on your 'adjusted net income'. https://www.gov.uk/child-benefit-tax-charge


Pension contributions reduce adjusted net income so can be used to avoid the charge if they bring your adjusted net income below £50,000.
https://www.gov.uk/guidance/adjusted-net-income

xylophone

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

NOVAMET21

Thanks both.

Just so I got this right, if someone earning £60,000 and paying £3,00 on pensions.

Their adjusted net income is £57,000? So, they only payback 70% of the child benefit claimed.

Similarly someone earning £52,000 and paying £2,600 on pensions.

Their adjusted net income is £49,400 so they don't have to pay anything back?

Thanks

calcotti

ANMOLAG wrote: »

Thanks both.

Just so I got this right, if someone earning £60,000 and paying £3,00 on pensions.

Their adjusted net income is £57,000? So, they only payback 70% of the child benefit claimed.

Similarly someone earning £52,000 and paying £2,600 on pensions.

Their adjusted net income is £49,400 so they don't have to pay anything back?

Thanks

That sounds right to me. There is a calculator here https://www.gov.uk/child-benefit-tax-calculator

NOVAMET21

Thanks Calcotti.

Dazed_and_confused

Although it generally all ends up producing a similar outcome you do need to understand the difference between different types of pension contributions.

An employer's scheme is often "net pay" which means your "salary" might be say £60k but with a 10% net pay contribution your taxable pay (the figure which goes on your P60) is only £54k. In this situation you cannot deduct the pension contributions when working out your adjusted net income. Because they have already been deducted when arriving at your taxable pay figure.

Salary sacrifice is similar except you don't contribute anything to the pension, your employer does. Again these contributions cannot be deducted as they are already reflected in your lower P60 pay figure i.e. salary £60k, you sacrifice £10k so your taxable pay is £50k. And there is no pension tax relief on the salary sacrificed contribution as your employer is the one actually paying it.

Relief at source contributions are deductable in calculating adjusted net income, which the High Income Child Benefit Charge is based on, but they don't reduce your taxable income. Instead they increase the amount of your basic rate tax band. Which can in turn reduce the amount of higher rate tax payable. For example your total taxable income is £55k and you contribute £5k (gross amount including basic rate tax relief added at source) to a relief at source scheme. Your adjusted net income is £50k but your income tax liability is calculated on the £55k income. But you get your basic rate tax band increased by £5k.