Questions on HICBC / Adjusted Net Income

overexposure

Hi all,

I'm looking at the rules for Higher Income Child Benefit Charge (HICBC), which effectively claws back Child Benefit for adjusted net income above 50k-60k. Realistically, additional pension contributions but also some charity contribution to bring taxable income down. But funding the claculation a bit tricky.

From what I understand, the key is to identify your appropriate adjusted net income, after allowable deductions, and not to forget to include all income even if it later has an allowance against it (such as dividends).

Uncertainties:

 - Charity payments: How is adjusted net income reduced in relation to the amount paid to the charity?  I understand that making a donation (if a higher rate tax payer) increases the amount of your basic tax band (by contribution x1.25) but am unclear how a gift to a charity impacts net adjusted income /HICBC? And does that vary if you are a basic rate only or a higher rate tax payer

 - Pension contributions: Deduct the grossed-up amount of pension contributions paid in accordance with s.192 FA 2004 (where your pension provider has already given you relief at the basic rate). So is that Contribution x 1.25 (regardless of whether in a lower or higher rate band), or another multiplier if in a higher rate band?

 - Working from home allowance (C-19, £312/year). Does this count as additional taxable income? Would it increase income for the purposes of calculating adjusted net income for HICBC?

 - CGT. What impact does any CGT gain make? If CGT gain below the annual CGT allowance, does it have no impact?

 - EIS/SEIS/VCT. Unlikely to consider this but am curious. Does this change the Adjusted Net Income? From what I can tell I think it does not. It reads as is if this is a relief against tax calculated as due, not a reduction in the income against which tax is calculated. Is that correct? So any EIS investment income tax reduction would not change liability for HICBC?

Other hypotheses

 - Dividends. Unless sheltered (via ISAs) then they count as income. The Dividend allowance comes later in the tax calculations, so doesn't alleviate them triggering HICBC. Is that correct?  I.e. £100 in dividends would be added to Net PAYE income to when calculating adjusted net income (for HICBC), even though the Dividend would later trigger no income tax (because it's below the annual dividend allowance)

 - Savings. Same question, re the annual savings allowance.

Any pointers appreciated.

Jeremy535897

See https://www.gov.uk/guidance/adjusted-net-income

Dazed_and_C0nfused

overexposure said:

Hi all,

I'm looking at the rules for Higher Income Child Benefit Charge (HICBC), which effectively claws back Child Benefit for adjusted net income above 50k-60k. Realistically, additional pension contributions but also some charity contribution to bring taxable income down. But funding the claculation a bit tricky.
Most pension contributions and Gift Aid contributions do not reduce taxable income

From what I understand, the key is to identify your appropriate adjusted net income, after allowable deductions, and not to forget to include all income even if it later has an allowance against it (such as dividends).
There is no "allowance" for dividends.  There is a rate band where £2,000 of dividends are taxed at 0%

Uncertainties:

 - Charity payments: How is adjusted net income reduced in relation to the amount paid to the charity?  I understand that making a donation (if a higher rate tax payer) increases the amount of your basic tax band (by contribution x1.25) but am unclear how a gift to a charity impacts net adjusted income /HICBC? And does that vary if you are a basic rate only or a higher rate tax payer

No, the gross contributions is deducted yes as part of ANI calculation.

 - Pension contributions: Deduct the grossed-up amount of pension contributions paid in accordance with s.192 FA 2004 (where your pension provider has already given you relief at the basic rate). So is that Contribution x 1.25 (regardless of whether in a lower or higher rate band), or another multiplier if in a higher rate band?
Yes, your actual tax rate is irrelevant for ANI purposes

 - Working from home allowance (C-19, £312/year). Does this count as additional taxable income? Would it increase income for the purposes of calculating adjusted net income for HICBC?
As you refer to additional income not an expense, is this something your employer is paying?

 - CGT. What impact does any CGT gain make? If CGT gain below the annual CGT allowance, does it have no impact?
Not relevant for ANI

 - EIS/SEIS/VCT. Unlikely to consider this but am curious. Does this change the Adjusted Net Income? From what I can tell I think it does not. It reads as is if this is a relief against tax calculated as due, not a reduction in the income against which tax is calculated. Is that correct? So any EIS investment income tax reduction would not change liability for HICBC?
Correct, they are tax reducers and have no impact on either your taxable income or ANI

Other hypotheses

 - Dividends. Unless sheltered (via ISAs) then they count as income. The Dividend allowance comes later in the tax calculations, so doesn't alleviate them triggering HICBC. Is that correct?  I.e. £100 in dividends would be added to Net PAYE income to when calculating adjusted net income (for HICBC), even though the Dividend would later trigger no income tax (because it's below the annual dividend allowance)
£100 in dividend income is both taxable income and part of your ANI.  There is no allowance for dividends, the £100 would be taxed at 0% and can increase your overall tax liability in some circumstances i.e. ANI is £100,100 (with the dividends included) so Personal Allowance is reduced by £50, adding £20 to the tax liability.  It could also add 1% to any HICBC due.

 - Savings. Same question, re the annual savings allowance.

There is no allowance for savings interest and any taxable interest would form part of your ANI.  There are two 0% rate bands applicable which can mean the interest attracts no actual tax liability but it is still part of your ANI and can increase your overall tax liability in some circumstances.

Any pointers appreciated.

Comments in bold.