116%(!) effective marginal tax rate between 50-60k....options?

JustVeryTight

Hi - I just wanted to double check if there's anything that can be done in this situation. Please, I appreciate that state benefits aren't usually there for people who earn a lot, and that I'm very fortunate. Nevertheless:
My family currently qualifies for Child Tax Credits. Our tax credits are only fully tapered away at 60k, because of kids with disabilities.
I have generally been able to keep my income under 50k in previous years, because I maximise my pension contributions (i.e. I put the full 40k allowed in).
Next year, it looks like my gross income for PAYE Purposes will just exceed 60k. This means, on the income between 50 - 60K I

• am taxed at 40%
• pay 2% NI
• lose 33p of Child benefit for every pound earned
• have tax credits tapered away at a rate of 41p in the pound.

This adds up to - a 116% effective marginal tax rate. I.e. We would be better off by about £1600 if I was 'only' earning 50K.
OK, so Cycle to work isn't an option for me to salary sacrifice more, and we are quite fortunate anyway - but I really think it's more than a bit off that we will be worse off for having more income! 
So, I'm considering gift aiding *everything* over 50k to charity, as that's an allowable deduction for both child benefit and tax credits and quite honestly a good charity is more deserving than I am. So I'm fine with that...but are there any alternatives? I'd appreciate not being judged overtly on this plan - I doubt anyone would accept being 1600 worse off for earning more though willingly.
Thanks for any advice!

Dazed_and_C0nfused

Do you definitely not have any carry forward available from the previous three years?

Don't forget Gift Aid works in the same way as relief at source pension contributions.

Say you Gift Aid £8,000 (net) then that £10,000 gross and your basic rate band will be increased from £37,700 to £47,700.

JustVeryTight

Dazed_and_C0nfused said:

Do you definitely not have any carry forward available from the previous three years?

Don't forget Gift Aid works in the same way as relief at source pension contributions.

Say you Gift Aid £8,000 (net) then that £10,000 gross and your basic rate band will be increased from £37,700 to £47,700.

Thanks for the response!  
No, no carry forward available for me. I've maxed that. I've been taking our families retirement quite seriously as I'm the sole earner. 
For child tax credits household income purposes, my partner could put 2880 net into her pension (for a gross of 3600) I've realised, but that doesn't offset the child benefit loss.
So to clarify - assuming I end up on exactly 60k, basically, I can gift aid 8k, gross it up to 10k for declaration purposes and that's good enough to knock my income for both tax credits and CB back down to 50k yeah (but I can't claim back / any higher rate relief on that contribution)?

MattMattMattUK

Do you have any share options, can you purchase additional days holidays etc.?

JustVeryTight

MattMattMattUK said:

Do you have any share options, can you purchase additional days holidays etc.?

Good questions -  re: shares yes, but it's the vesting of those as RSUs and the taxation of that value that's going to send me to 60k, and no option to purchase additional days.

Dazed_and_C0nfused

So to clarify - assuming I end up on exactly 60k, basically, I can gift aid 8k, gross it up to 10k for declaration purposes and that's good enough to knock my income for both tax credits and CB back down to 50k yeah (but I can't claim back / any higher rate relief on that contribution)?

If your taxabke income is £60k and that is all earnings, no interest or dividends for example, then you will normally be paying 40% tax on £9,730.  Gift Aid does not reduce the amount chargeable to tax.

But it does increase your basic rate band, by £10k in this example so you would pay 20% tax on the £9,730 not 40%.

A gross Gift Aid contribution of £10k would also reduce your adjusted net income (relevant for HICBC) to £50k so no HICBC to pay.

Don't know about tax credits but pension contributions are taken into account so it may work in a similar way with Gift Aid.

JustVeryTight

It's a shame about cycle to work because I could probably get paid to buy Chris Froome's bike!

JustVeryTight

But to be honest, it looks like I'm out of options really. 
Just out of curiosity, what do people think of the ethics of me doing this (charitable contribution) rather than sucking up the realities of the tax system and swallowing the loss?

JustVeryTight

Dazed_and_C0nfused said:

So to clarify - assuming I end up on exactly 60k, basically, I can gift aid 8k, gross it up to 10k for declaration purposes and that's good enough to knock my income for both tax credits and CB back down to 50k yeah (but I can't claim back / any higher rate relief on that contribution)?

If your taxabke income is £60k and that is all earnings, no interest or dividends for example, then you will normally be paying 40% tax on £9,730.  Gift Aid does not reduce the amount chargeable to tax.

But it does increase your basic rate band, by £10k in this example so you would pay 20% tax on the £9,730 not 40%.

A gross Gift Aid contribution of £10k would also reduce your adjusted net income (relevant for HICBC) to £50k so no HICBC to pay.

Don't know about tax credits but pension contributions are taken into account so it may work in a similar way with Gift Aid.

Thanks again - though what about higher rate relief on gift aid contribs between 50-60k? Sorry, I'm not too au fait with this stuff so under what circumstances does claiming back higher rate relief count ... if not this one?
So could I do a self assessment and claim that back 20% on the gift aid contrib too in the above example? That would be absolutely awesome. 

Dazed_and_C0nfused

It wouldn't be 20% though because you wouldn't be paying 20% on the full £10k.

The basic rate band in 2021:22 is £50,270 so you would be saving £1,946 (£9,730 x 20%) assuming that you do in fact pay higher rate tax on £1,946 in the first place.

JustVeryTight

Dazed_and_C0nfused said:

It wouldn't be 20% though because you wouldn't be paying 20% on the full £10k.

The basic rate band in 2021:22 is £50,270 so you would be saving £1,946 (£9,730 x 20%) assuming that you do in fact pay higher rate tax on £1,946 in the first place.

Thanks, but I'm still not clear. Sorry!
A simple question:
Can I claim higher rate tax relief on gift aid contributions made on gross taxable income between £50270-60k in tax year 2021:22?