Child Benefit - Pension Contributions

house_help

Just wanted to check my understanding for this tax year whilst paying into SIPP.

My employed income after my workplace pension contributions should be £62,050.We currently getting child benefit for 2 children = £1,820 in the year.

Just checking my understanding is correct. If I contribute into my SIPP £9,640 this will reduce my income for Child benefit by £12,050 (9.640/0.8 = 12,050) to £50k and will mean I don't have to pay the child benefit back via tax charge.

So for addition into pension of £12,053 it will cost me in after Child benefit and high rate tax relief back £9,640 - £1,820 - £2,410 = £5,409? Or to look the other way on my 50 - 60k income band I am paying marginal 58.2% tax rate?

I think this is correct but just checking that the amount taken off for CB income is the SIPP contribution + basic relief not just the contribution.

Final question I will also have some interest income in the year but less than the £500 zero rate band - would it count as income for CB income or only the amount above £500?

Brynsam

If you've not yet done so, try https://www.gov.uk/child-benefit-tax-calculator which picks up your questions on pensions and on interest.

cloud_dog

Making a payment in to your personal SIPP will not reduce your taxable income to take you below the HRT threshold.

If your workplace scheme is a net pay or salary sacrifice, you need to use that for the additional monies so as to reduce your taxable income down to the HRT threshold.

NedS

cloud_dog said:

Making a payment in to your personal SIPP will not reduce your taxable income to take you below the HRT threshold.

If your workplace scheme is a net pay or salary sacrifice, you need to use that for the additional monies so as to reduce your taxable income down to the HRT threshold.

Yes it will but the OP will have to notify HMRC, and manually reclaim any HRT that has been paid as the SIPP will only receive tax relief at 20%, not 40%.

If you can make the extra contributions through your work pension scheme then it may be easier in that your taxable (net) income will already be reduced for CHB purposes and you will not need to reclaim any HRT from HMRC, which is perhaps the point cloud_dog was trying to make.

cloud_dog

Yes.  I should have used the term, adjusted net income.

house_help

Brynsam said:

If you've not yet done so, try https://www.gov.uk/child-benefit-tax-calculator which picks up your questions on pensions and on interest.

Thanks for the link. I popped details in there and confirmed my numbers were correct - you do use contribution + basic relief. On savings the notes are "taxable savings" so I have assumed this to mean only those above £250 = zero for me.

Thanks also to Cloud_dog and NedS. I am already paying (for me at least) a high 21% of salary into workplace pension each month - I cannot afford each month and be clear on expenses and have money to enjoy ourselves! That amount gets me down to the £62k. I have some fixed savings accounts finishing before end of tax year that I will use to put in the SIPP and get the £12K pension increase for £5.4K cost. I already fill in Self Assessment so getting the rebate from HMRC will come from that.

zagfles

house_help said:

Brynsam said:

If you've not yet done so, try https://www.gov.uk/child-benefit-tax-calculator which picks up your questions on pensions and on interest.

Thanks for the link. I popped details in there and confirmed my numbers were correct - you do use contribution + basic relief. On savings the notes are "taxable savings" so I have assumed this to mean only those above £250 = zero for me.

Thanks also to Cloud_dog and NedS. I am already paying (for me at least) a high 21% of salary into workplace pension each month - I cannot afford each month and be clear on expenses and have money to enjoy ourselves! That amount gets me down to the £62k. I have some fixed savings accounts finishing before end of tax year that I will use to put in the SIPP and get the £12K pension increase for £5.4K cost. I already fill in Self Assessment so getting the rebate from HMRC will come from that.

Yes you take off the gross contribution to get your adjusted net income which is used for child ben purposes. But pretty sure you'll need to do a tax return if you don't already - also to claim back the higher rate relief. 

All taxable interest will count, whether covered by an allowance or not. Just like your taxable employment income will include the part covered your personal allowance, your taxable interest will include the part covered by the personal savings allowance. But tax free interest eg ISA interest doesn't count. 

house_help

zagfles said:

house_help said:

Brynsam said:

If you've not yet done so, try https://www.gov.uk/child-benefit-tax-calculator which picks up your questions on pensions and on interest.

Thanks for the link. I popped details in there and confirmed my numbers were correct - you do use contribution + basic relief. On savings the notes are "taxable savings" so I have assumed this to mean only those above £250 = zero for me.

Thanks also to Cloud_dog and NedS. I am already paying (for me at least) a high 21% of salary into workplace pension each month - I cannot afford each month and be clear on expenses and have money to enjoy ourselves! That amount gets me down to the £62k. I have some fixed savings accounts finishing before end of tax year that I will use to put in the SIPP and get the £12K pension increase for £5.4K cost. I already fill in Self Assessment so getting the rebate from HMRC will come from that.

Yes you take off the gross contribution to get your adjusted net income which is used for child ben purposes. But pretty sure you'll need to do a tax return if you don't already - also to claim back the higher rate relief. 

All taxable interest will count, whether covered by an allowance or not. Just like your taxable employment income will include the part covered your personal allowance, your taxable interest will include the part covered by the personal savings allowance. But tax free interest eg ISA interest doesn't count. 

Thanks - taxable interest makes sense now in terms of ISA v not ISA. In my case I will need to include the interest income as from non-ISA accounts and increase the SIPP contribution bit more to bring the total down to £50K and maximize the relief.

I am already doing self assessment returns so no additional work. I have submitted recently last years to get back high tax relief for SIPP contribution, but income was higher last year so was not bringing it below CB threshold. I trying this year this to max benefit because it will be not such a big gap, next year I will be back with higher income so would be too big a gap to reduce income below the threshold. My tax code is already reduced so I pay the CB charge through the year so it will be a nice bit cash back come April.

house_help

Just as update on this thread. I increased my workplace pension a little and had payrise in the middle but my total taxable after workplace pension (all SS) was £62,135. Total non-Isa interest £187.

We got the £1,820 child benefit paid so without any SIPP contribution I would have had to pay this back.

In total i paid into my SIPP £9,735 which on my SA calculation gives "Your basic rate limit has been increased by £12,169.00 to £49,669.00 for pension payments". I also claimed the £312 allowable for working for home for the year. My tax code had already been updated earlier in the year assuming I would be paying the child benefit back so in the end I had a total refund of the £1820 child benefit "high income tax charge" collected during the year and plus the a HRT so total ~£4300. This will be going back into the SIPP this year. I think likely I will need to use previous years annual allowance to get my taxable income down to the ~£50K level this year (and find the cash to put £10K+ into SIPP) but I will try as its such a large tax saving.

I am just trying to work out if we can now also use marriage allowance as my wife doesn't use all her personal allowance and with the SIPP payments I only paid basic rate tax so I think meeting the "your partner pays Income Tax at the basic rate, which usually means their income is between £12,501 and £50,270 before they receive Marriage Allowance" rule. My wife will fill in her SA shortly (she is self employed but with quite low income) and will apply on there and see what they say.

Dazed_and_C0nfused

Eligibility for Marriage Allowance is based on what tax rate you are liable at, not the amount of your taxable income.

If your wife isn't liable to higher rate tax then she is eligible (to apply for or receive Marriage Allowance).

If you aren't eligible to higher rate tax then you are eligible (to receive or apply for Marriage Allowance).

HMRC only check eligibility for Marriage Allowance.  They don't check if it is beneficial for you, as a couple, to apply, they simply act on any valid application made.

house_help

As final update incase useful for anyone in same circumstance we applied for the marriage allowance on my wife SA and it all went through and I got the additional £250 tax repayment via another refund which has just come through.

They have also updated my tax code to assume I will make the same SIPP contribution this year as last - this then removes the child benefit charge in the tax code. So rather than claim after the tax year a refund I will have the money during the year so will be able to use it to put it in the SIPP to actually make the contribution they assume in the tax code.