Borderline higher rate tax, pensions and child benefit

reveller

Hi, I started a new job in January after being made redundant last year with a big pay rise. In the new tax year I will be perilously close to paying higher rate tax (my private joke as I come from a working class background and went to art school) once my bonus and other benefits are added.

I get child benefit for my daughter and was wondering if I could avoid losing the child benefit by paying more into my pension fund through my work pension or if the amount calculated is before any pension contributions. My pension pot is very small so I'd rather pay more in than lose out even if only by a few quid. I am also assuming my taxable benefits (private health plan) is included in HMRC's calculations of whether I deserve child benefit or not.

Dazed_and_C0nfused

The High Income Child Benefit Charge is based on your "adjusted net income", not taxable income so pension contributions will help reduce your ANI.

All taxable income is counted as part of your ANI, company benefits are no different and don't forget taxable interest and dividends are also included even if they are actually taxed at 0%.

kuratowski

What dazed said, and here is a page with a bit more on how Adjusted Net Income is calculated

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

reveller

Brilliant, thanks for that, especially the dividends mention I have some to take out of a company I am closing down. I guess I may have to pay a bit extra in my pension then. I have to do a tax return anyway but would rather not add yet another complication.

dctrgre

reveller said:

Brilliant, thanks for that, especially the dividends mention I have some to take out of a company I am closing down.

It may be beneficial for the company to make contributions directly to your pension. 

Screaming_Flamingo

Hi all

I have a similar question to reveller, and am finding adjust net income a slippery concept. Mrs ScreamingFlamingo has a new job bringing in £70k. Her company give her a NEST pension and Mrs SF is seeing £1,761 go out from from her salary into the scheme per year. I am trying to work out what she needs to pay into her separate Aviva pension per year to avoid the child benefit charge. 

Does it work like this?

Income: £70,000
Minus Nest Pension Payment, grossed up: £1,761*1.25 = £2,201
Minus Aviva Pension Payment, grossed up: £14,300*1.25 = £17,875
Adjusted Net Income: £70,000 - £17,875 - £2,201 = £49,924, so no charge to pay

And then, separately, she also gets tax relief back for those pension contributions via self-assessment to adjust for the higher rate income thing? 

Thanks in advance! 

SF. 

Dazed_and_C0nfused

Are her NEST contributions definitely paid using the "relief at source" method?

What about other taxable income such as company benefits, interest or dividends?

Any HICBC and additional tax relief on the pension contributions is dealt with via her Self Assessment return.

She can get provisional tax relief via her tax code if she wants but it is the Self Assessment return which finalises things.

And HMRC only ever allow tax relief in the tax year the contribution is paid in but once a Self Assessment return is filed they may allow provisional pension relief in the current year on the assumption similar contributions will be paid again.  This is never allowing tax relief for the year the contribution was paid in.

Screaming_Flamingo

Thanks D&C

I think the NEST is relief at source, yes. It is paid in net and NEST are adding an amount they label "tax relief" which is 25% of what she pays in. And no, sadly no other taxable income. 

In terms of the numbers, have I understood things roughly right do you think? Is that how the numbers would work on the self assessment return? 

Dazed_and_C0nfused

If the £70,000 is what will be on her P60 then yes.

She will be taxed on £70,000 with more at 20% and less (or none) at 40% because of the relief at source pension contributions.

But for HICBC purposes the gross amount of the relief at source pension contributions reduce the adjusted net income as you have shown.

So if she gets it under £50,100 then she would have no HICBC to pay.

Remember all taxable interest (if she were to have any) forms part of her ANI.

Screaming_Flamingo

You are a star - thank you. 

wolvoman

Screaming_Flamingo said:

Hi all

I have a similar question to reveller, and am finding adjust net income a slippery concept. Mrs ScreamingFlamingo has a new job bringing in £70k. Her company give her a NEST pension and Mrs SF is seeing £1,761 go out from from her salary into the scheme per year. I am trying to work out what she needs to pay into her separate Aviva pension per year to avoid the child benefit charge. 

Does it work like this?

Income: £70,000
Minus Nest Pension Payment, grossed up: £1,761*1.25 = £2,201
Minus Aviva Pension Payment, grossed up: £14,300*1.25 = £17,875
Adjusted Net Income: £70,000 - £17,875 - £2,201 = £49,924, so no charge to pay

And then, separately, she also gets tax relief back for those pension contributions via self-assessment to adjust for the higher rate income thing? 

Thanks in advance! 

SF. 

Surely if £1,761 is being deducted out of gross earnings then this is the amount that can be offset against adjusted income?

To add: don't forget business expenses. People often forget these, and these can help reduce your ANI down a bit too.