Reducing income to receive child benefit? 8 September 2022 at 6:42PM in Cutting tax 6 replies 378 views

PledgeX2

My salary has recently increased to 70k, and as a result I no longer qualify for child benefit. I have two children who would qualify, so losing the ~£150p/m in child benefit has a bit of an impact on our household budget.

I understand that it's possible to increase your pensions contributions such that it brings you back under the threshold. I'm not quite sure about how this is calculated though. Would someone be able to walk me through the calculations to see how much I would have to contribute to qualify for child benefit again?

I currently pay 8% of my PAYE salary into my employer's pension scheme (they pay 4% if it makes a difference). My scheme is relief at source, and salary sacrifice is not possible. 

Dazed_and_C0nfused

You do qualify for Child Benefit.  Your income doesn't alter that.

But if you want to keep it all you need to reduce your adjusted net income to £50,099.

What will your 2022:23 P60 show your taxable pay as?

And what other taxable income do you expect to get in 2022:23?  Interest, dividends, company benefits etc.

sheramber

Will  reducing your adjusted net income to £50,000  income  not  impact more on your household budget.

PledgeX2

Dazed_and_C0nfused said:

You do qualify for Child Benefit.  Your income doesn't alter that.

But if you want to keep it all you need to reduce your adjusted net income to £50,099.

What will your 2022:23 P60 show your taxable pay as?

And what other taxable income do you expect to get in 2022:23?  Interest, dividends, company benefits etc.

I'm not 100% what my P60 will say. I was on less than 70k lower salary for the first few months of the tax year, and my salary has changed multiple times as I changed jobs. I'm due a small bonus later this year though, so I would estimate my income for this tax year will be around 68k (gross).

I don't have any company benefits (healthcare, company car, etc). Not expecting much in the way of interest on my savings, maybe £150 max. No other form of income, pensions, dividends or anything like that.

PledgeX2

sheramber said:

Will  reducing your adjusted net income to £50,000  income  not  impact more on your household budget.

Of course, but sacrificing some income in the short term might pay off over the long term. I currently pay into a Stocks and Shares ISA which I would potentially stop paying into, and that combined with getting the child benefit back might make it a bit more feasible.

Dazed_and_C0nfused

PledgeX2 said:

Dazed_and_C0nfused said:

You do qualify for Child Benefit.  Your income doesn't alter that.

But if you want to keep it all you need to reduce your adjusted net income to £50,099.

What will your 2022:23 P60 show your taxable pay as?

And what other taxable income do you expect to get in 2022:23?  Interest, dividends, company benefits etc.

I'm not 100% what my P60 will say. I was on less than 70k lower salary for the first few months of the tax year, and my salary has changed multiple times as I changed jobs. I'm due a small bonus later this year though, so I would estimate my income for this tax year will be around 68k (gross).

I don't have any company benefits (healthcare, company car, etc). Not expecting much in the way of interest on my savings, maybe £150 max. No other form of income, pensions, dividends or anything like that.

So if your taxable income is £68,150 you would need to contribute £18,051 (gross) to drop your adjusted net income to £50,099 and avoid paying any High Income Child Benefit Charge.

That would mean you pay £14,441 into your pension using the relief at source method with the pension company adding £3,610 in basic rate tax relief.

As well as the £3,610 in pension tax relief this would mean you avoid any HICBC, saving you £1,885

And your basic rate band will be increased from £37,700 to £55,751.  Meaning you don't pay any higher rate tax either.  A personal tax saving of £3,546.

So the real cost of getting £18,051 into your pension fund is actually only £9,010.  Very tax efficient 😃

Strummer22

Dazed_and_C0nfused said:

So the real cost of getting £18,051 into your pension fund is actually only £9,010.  Very tax efficient 😃

Yes, if you don't need the money now, it's highly beneficial to put your earnings over ~50k into your pension, especially as you will retain the child benefit payments as a result. 

I am in a similar position (slightly lower gross earnings) except I have an enormous mortgage and can't afford to put lots more into my pension right now