Child Benefit Tax Reduction Help

mrnomoneybags

Hi All, I've read a lot about tax reductions and 40% tax etc and I'm a tad lost.

I have have been lucky enough to get a pay increase from below the £50k limit to £56100, This I understand means I will have to pay tax on the CB.

I currently have a pension take from my salary like:

My contribution £183.45
Employer contribution £110.07
Tax relief £45.86

How much extra would I need to pay into my pension to eliminate the additional tax on the CB?

TIA

Dazed_and_C0nfused

There is no tax payable on Child Benefit.

But if your adjusted net income is £50,100 or more you have to repay some or all of the Child Benefit.

You are paying c£2,750 in pension contributions (gross value) so your adjusted net income may be £53,350. 
NB.  You ignore employer contributions.

You will need to take into account any other taxable income when calculating your adjusted net income even if it is taxed at 0%, for example interest or dividends.

Making additional pension contributions in your situation is incredibly tax efficient.  Your current contributions are costing you about £2,200/year.  But you get a pension fund of £2,750 in return.  And higher rate tax relief of £550.  And they would save you c£500 in Child Benefit if you have two children.

So the real cost of the £2,750 in your pension fund is actually only £1,150.  A difficult return to beat 

You need to read up on adjusted net income to make sure you understand how it will impact your Child Benefit.

And don't forget the High Income Child Benefit Charge is based on your adjusted net income for the whole tax year so if you were earning £50k from April till say July and £56k from August to the end of the tax year then your actual earnings may be just £54k in the current tax year.

daveyjp

As above if the increase in salary is part way through the year don't act in haste.

Complete a tax return for this financial year, look at the impact of the Child Benefit charge and consider it in the round of your other financial priorities.

mrnomoneybags

Thanks for the feedback both, I'm clearly even mixed up about the wording.

I only have the 1 child and I have no other additional income, my pay increase was from April.

I will try to read up some more on adjusted net income, thanks for the help!!

calcotti

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

skybluearmyontour

calcotti said:

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

Step 1 - work out your ‘net income’

Add up your taxable income.

Include things like:

• money you earn from employment (including any benefits you get from your job)
• profits you make if you’re self-employed including from services you sell through websites or apps
• some state benefits
• most pensions (including the State Pension, company and personal pensions and retirement annuities )
• interest on savings and pensioners bonds
• dividends from company shares
• some rental income
• income from a trust

Related question to OP so posting here, hope that’s ok.

Am I correct in saying I DO NOT include the child benefit payments as part of my annual net income because it’s a tax-free state benefit?

calcotti

Correct.