Making pension contributions to reduce High Income Child Benefit Charge

r6mile

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!

Jeremy535897

What matters is when the contribution is made, not where the funds come from. You need to ensure that the pension provider treats the contribution as made in 2022/23, which can become an issue the nearer you get to 5 April when making the contribution.

r6mile

Jeremy535897 said:

What matters is when the contribution is made, not where the funds come from. You need to ensure that the pension provider treats the contribution as made in 2022/23, which can become an issue the nearer you get to 5 April when making the contribution.

Thank you - as I thought, just wanted to confirm. I will just make sure I make the contribution v soon.

Dazed_and_C0nfused

Not sure you're sums are quite right

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.

r6mile

I have rounded the sums for the purposes of the post but they should be broadly right - I have the exact ones on my spreadsheet!

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.

Clare239

I found adding gift aid payments to my self assessment made a big difference to the child benefit reduction. Gift aid adds up quickly if payments to voluntary aided schools are relevant to you.  You can also include scouting subs etc.

r6mile

Thank you - I will check my charity contributions to check if that helps.

Dazed_and_C0nfused

r6mile said:

Thank you - I will check my charity contributions to check if that helps.

You are required to include Gift Aid amounts on your Self Assessment return so presumably have already been doing that for any years where HICBC has been relevant.

r6mile

I have been looking at mine and my wife’s income for the last few years, and very annoyingly I think I may have just missed out on being able to claim the marriage allowance in 2020/21. 

That year, my wife earned just over 10k. I earned £50055 after pension contributions. That year the higher rate threshold was 50k exactly. I made just £34 of gift aid-eligible charity contributions. Nothing I can do is there? So frustrating to miss out on a £250 rebate because my income was only a few quid too high! You live and learn…

[Deleted User]

r6mile said:

I have been looking at mine and my wife’s income for the last few years, and very annoyingly I think I may have just missed out on being able to claim the marriage allowance in 2020/21. 

That year, my wife earned just over 10k. I earned £50055 after pension contributions. That year the higher rate threshold was 50k exactly. I made just £34 of gift aid-eligible charity contributions. Nothing I can do is there? So frustrating to miss out on a £250 rebate because my income was only a few quid too high! You live and learn…

That is most unfortunate - missing out by a tenner! It just emphasises the many cliff edges there now seems to be!

There is nothing you can do with regard to that tax year.

saucer

Use the calculator on HMRC website to play with the numbers. It is easy and clear