Confused about how to reduce my adjusted net income and avoid child benefit charge 29 December 2022 at 11:51PM in Cutting tax 4 replies 317 views

Fphelp123

I have been considering switching to a pension that doesn’t offer salary sacrifice but can’t understand how I can reduce my adjusted net income down to the 50k mark to avoid the higher child benefit charge. 

So my new salary will be 64k and the new pension asks me to give a percentage of my salary I want to pay in and says it is paid after tax  so I pay a reduced contribution and 20% is added to it as the tax the pension provider claims back. 

I can then claim another 20% back on anything within the 40% tax bracket is that correct?

is that money then paid to me after self assessment rather than to my pension?  

If so how do I get my adjusted income down as close to 50k as possible? What percentage of my net pay would I propose and how do I work it out so if my salary increases I know how to amend the percentage too? 

I just can’t work out the process. My only other income is £500 savings interest each year. Do I have to take home much less initially until the tax situation sorts out?  

I have lots of children and so the child benefit tax charge is very high and I would like to reduce it while also increasing my pension 

apologies if I am not making complete sense as I’m getting confused by it all n]but I know there are some very switched on people here 

Dazed_and_C0nfused

Why are you thinking of changing from salary sacrifice?

With relief at source 25% is added to your (net) contribution.  Which is 20% of the gross contribution.  For example you pay £1,000 and £250 is added by the pension company making a gross contribution of £1,250 (£1,250 x 20% = £250).

If your total taxable income was £64,500 then you would need to pay £11,600 (net) into a relief at source pension to reduce your adjusted net income to £50,000

£11,600 net = £14,500 gross.

And you don't get an extra 20%.  Your basic rate band is increased by the gross contribution but given you wouldn't be paying 40% tax on £14,500 of your income the higher rate tax relief would be limited slightly.

Fphelp123

So I’m in the civil service so am thinking of switching over to partnership pension which doesn’t offer salary sacrifice. Basically because I was temporarily promoted and on a much higher salary and I’m not convinced I want to be at that level again so switching to partnership would preserve my final salary pension at the much higher level.  

Thanks for the answer, so the bit I don’t understand is if I pay my pension contributions after tax I will have paid 40% tax but only got relief at 20% tax I think so is there some sort of refund or tax code change after I do self assessment? Or am I mixed up about all this? 

The information about the partnership pension says you should contact HMRC to claim the extra tax relief so I had assumed that would be done at self assessment so I get my tax right with savings income and child benefit charge to all be covered by the self assessment. 

Dazed_and_C0nfused

Fphelp123 said:

So I’m in the civil service so am thinking of switching over to partnership pension which doesn’t offer salary sacrifice. Basically because I was temporarily promoted and on a much higher salary and I’m not convinced I want to be at that level again so switching to partnership would preserve my final salary pension at the much higher level.  

Thanks for the answer, so the bit I don’t understand is if I pay my pension contributions after tax I will have paid 40% tax but only got relief at 20% tax I think so is there some sort of refund or tax code change after I do self assessment? Or am I mixed up about all this? 

The information about the partnership pension says you should contact HMRC to claim the extra tax relief so I had assumed that would be done at self assessment so I get my tax right with savings income and child benefit charge to all be covered by the self assessment. 

I though civil service pension operated under the "net pay" rules, not salary sacrifice.

Are you currently in the Alpha scheme?

There is no separate refund under the relief at source scheme.  Any personal tax saving is wrapped up in your Self Assessment calculation.  It may be you get a refund but if you owed say £5k from rental income and the higher rate pension tax relief saved you £2k then you wouldn't get a £2k refund.

You would have a Self Assessment bill for £3k instead of £5k.

Fphelp123

Dazed_and_C0nfused said:

Fphelp123 said:

So I’m in the civil service so am thinking of switching over to partnership pension which doesn’t offer salary sacrifice. Basically because I was temporarily promoted and on a much higher salary and I’m not convinced I want to be at that level again so switching to partnership would preserve my final salary pension at the much higher level.  

Thanks for the answer, so the bit I don’t understand is if I pay my pension contributions after tax I will have paid 40% tax but only got relief at 20% tax I think so is there some sort of refund or tax code change after I do self assessment? Or am I mixed up about all this? 

The information about the partnership pension says you should contact HMRC to claim the extra tax relief so I had assumed that would be done at self assessment so I get my tax right with savings income and child benefit charge to all be covered by the self assessment. 

I though civil service pension operated under the "net pay" rules, not salary sacrifice.

Are you currently in the Alpha scheme?

There is no separate refund under the relief at source scheme.  Any personal tax saving is wrapped up in your Self Assessment calculation.  It may be you get a refund but if you owed say £5k from rental income and the higher rate pension tax relief saved you £2k then you wouldn't get a £2k refund.

You would have a Self Assessment bill for £3k instead of £5k.

Sorry I didn’t give all the information. So I have used salary sacrifice for the additional voluntary contributions along with my alpha pension to keep my income at 50k for a few years now but partnership doesn’t offer it. 

So I have no other income other than the 64.5k so I can’t see me ending up paying more by doing a self assessment