Higher Rate Child Benefit Tax Charge and Marriage Allowance question.

Louisdawg

Hi All

Thank you in advance- I'm hoping someone could check my figures please -

Last year my taxable pay was £50686.78 (that's gross but after salary sacrifice pensions which were well below the 40k limit etc)

I also got £512.61 in interest from a savings account (not held within an isa)

Therefore would HMRC consider my taxable income to be £51199.39?

I'm trying to work out what I have to put into my pension to make sure I avoid the Child Benefit Higher rate charge AND qualify for the Marriage allowance my wife applied for (She's a stay at home Mum).

Do I need to put in £960 into my private pension to be in the clear? (£960 x1.25 = £1200 bringing my adjusted salary down to £49999.39?)

Or is the first £500 of the savings interest tax free?

Many thanks in advance - It's usually a lot easier than this but my pay has been all over the place this year due to furlough and pandemic and I will have to fill in a self-assessment - thus would rather make the pension payment rather than owe tax.

Dazed_and_C0nfused

You are too late to add money to a pension now for last (tax) year.

Do you mean the current tax year?

Louisdawg

Dazed_and_C0nfused said:

You are too late to add money to a pension now for last (tax) year.

Do you mean the current tax year?

Yes 20/21 tax year - as in I need to make the payment in the next week before the bank holiday.

Cheers

Dazed_and_C0nfused

HICBC is based on adjusted net income and is only due if your ANI is £50,100 or more.

Based on your original post your ANI is currently £51,199 so you need to contribute £1,100 gross.  Meaning a net contribution of £880.

This also increases the amount of your basic rate band from £37,500 to £38,600 so will save you some higher rate tax as well as avoiding the HICBC.

Unless it's tax exempt like an ISA all savings interest is taxable and forms part of your ANI.  However the first £500 or £1000 will be taxed at 0% (the savings nil rate of tax, aka Personal Savings Allowance).

Louisdawg

Dazed_and_C0nfused said:

HICBC is based on adjusted net income and is only due if your ANI is £50,100 or more.

Based on your original post your ANI is currently £51,199 so you need to contribute £1,100 gross.  Meaning a net contribution of £880.

This also increases the amount of your basic rate band from £37,500 to £38,600 so will save you some higher rate tax as well as avoiding the HICBC.

Unless it's tax exempt like an ISA all savings interest is taxable and forms part of your ANI.  However the first £500 or £1000 will be taxed at 0% (the savings nil rate of tax, aka Personal Savings Allowance).

So despite the £512.61 being below the £1000 allowance or £500 personal savings allowance does it still count toward your income?

Also I thought I had to be below £50000 to benefit from my wife's Marriage allowance transfer (1250 of her personal allowance will be allocated to me thus saving £250 of tax?)

Cheers

Dazed_and_C0nfused

There is no "allowance" for interest (or dividends).

The so called Personal Savings Allowance is actually a 0% tax rate.  Non ISA interest is taxable just like any other taxable income, albeit potentially at 0%.

Eligibility for Marriage Allowance is not based on income.  It is based on your tax rate.  So if you have taxable income of say £60k but contribute £12k (gross) to a relief at source pension you would still be eligible.

You are better off notifying HMRC of the pension contribution before they come to review the 2020:21 in the summer, otherwise they may cancel  Marriage Allowance and assume you are liable to the HICBC.

MattMattMattUK

Dazed_and_C0nfused said:

There is no "allowance" for interest (or dividends).

There is, the first £2,000 of dividends revived are tax free.
https://www.gov.uk/tax-on-dividends

Dazed_and_C0nfused

That is another 0% tax rate.

If the op had £2,000 of dividends on too of their other taxable income they would be taxed at 0% on the dividends (the dividend nil rate) but would have a 20% HICBC.

This explains dividends (and some other things) better than gov.uk manages.
https://www.tax.org.uk/media-centre/blog/media-and-politics/when-allowance-not-allowance-and-why-does-it-matter

Louisdawg

Dazed_and_C0nfused said:

You are better off notifying HMRC of the pension contribution before they come to review the 2020:21 in the summer, otherwise they may cancel  Marriage Allowance and assume you are liable to the HICBC.

I'll be filling in my self-assessment at the earliest opportunity after 6th April so hopefully, that will give them an indication.

I just want to get my adjusted income down to below 50k to avoid the higher rate child benefit charge and make the most of the marriage allowance.

Hopefully I'm right to pay £960 net income into my personal pension to reduce my taxable income to below 50k.