Making pension contributions to reduce High Income Child Benefit Charge
r6mile
Forumite 13 Posts
Hello,
My gross income in in FY 22/23 is likely to be just over £60k. Minus pension contributions of £4k, I understand my 'net income' (for the purposes of child benefit) is therefore around £56k - I am the highest earner in my household
I have 3 children and receive Child Benefit. On the basis of these sums, I understand I would need to pay back around £1.6k of the Child Benefit received this FY.
However I also understand that if I contribute £6k gross into my pension, I can reduce my 'net income' to £50k and therefore not have to pay the £1.6k back. The net cost of this would be just over £2k (£3.6k after 40p tax relief, minus the 1.6k of child benefit otherwise due to be paid back) - which feels like a good deal.
The issue is I do not currently have enough 'cash' to be able to make this payment before the end of the FY. However, I could withdraw the funds from my stocks and shares ISA.
I just want to check whether all of this would work? Presumably it doesn't matter that the funds used to make my pension contributions (and therefore reduce my net income) have come from savings?
Any views would be gratefully received!
My gross income in in FY 22/23 is likely to be just over £60k. Minus pension contributions of £4k, I understand my 'net income' (for the purposes of child benefit) is therefore around £56k - I am the highest earner in my household
I have 3 children and receive Child Benefit. On the basis of these sums, I understand I would need to pay back around £1.6k of the Child Benefit received this FY.
However I also understand that if I contribute £6k gross into my pension, I can reduce my 'net income' to £50k and therefore not have to pay the £1.6k back. The net cost of this would be just over £2k (£3.6k after 40p tax relief, minus the 1.6k of child benefit otherwise due to be paid back) - which feels like a good deal.
The issue is I do not currently have enough 'cash' to be able to make this payment before the end of the FY. However, I could withdraw the funds from my stocks and shares ISA.
I just want to check whether all of this would work? Presumably it doesn't matter that the funds used to make my pension contributions (and therefore reduce my net income) have come from savings?
Any views would be gratefully received!
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HICBC and higher rate tax have different thresholds so not all of your pension contribution would attract higher rate tax relief, even if your gross taxable income was 100% earnings.
It would still be very tax efficient just not quite as much as you thought.
Although it does potentially open up other tax efficiencies such as an increased savings nil rate band or entitlement to Marriage Allowance. Assuming you're u have factored in all of your taxable income in the original £60k figure.
I understood that the 40p band for 22/23 starts at £50,271. HICBC starts to get withdrawn after £50,099 - so not an exact match but extremely close?
Good should about the marriage allowance! My partner is a low earner so there is a chance of something there.
There is nothing you can do with regard to that tax year.
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