15/30 Free Childcare - Salary >£100k

eca05mb

Hi Money Saving Expert,

I've recently been offered a new role, however the base salary is now £125k which means I am no longer eligible for free childcare support (15/30hrs).

Is it worth putting in £25k+ into my pension to reduce my adjusted net income to below £100k so that I am eligible for the childcare support and being impacted by the personal allowance double whammy.

Is this something worthwhile to explore with a tax accountant? Or will it not make financial sense to do this?

Any help or support on this topic will be greatly appreciated

Thanks!

Dazed_and_C0nfused

eca05mb said:

Hi Money Saving Expert,

I've recently been offered a new role, however the base salary is now £125k which means I am no longer eligible for free childcare support (15/30hrs).

Is it worth putting in £25k+ into my pension to reduce my adjusted net income to below £100k so that I am eligible for the childcare support and being impacted by the personal allowance double whammy.

Is this something worthwhile to explore with a tax accountant? Or will it not make financial sense to do this?

Any help or support on this topic will be greatly appreciated

Thanks!

It would make a lot of financial sense.  The £100-125k income range is awful tax wise, 40% tax rate and loss of Personal Allowance= effective tax rate of 60% 😳

Not sure what it's got to do with a tax accountant though in all honesty, it's just straightforward common sense with the benefit of tax saved now and a better retirement. 

Assuming you invest the pension funds sensibly 😉.

An even better option, if possible is for you to not put the money into your pension but to get your company to operate salary sacrifice.

You give up £25k of salary in return for extra employer contributions and yes you miss out on pension tax relief but you avoid paying tax AND NI on the £25k.  And some enlightened employers even add some or all of their NI saving to your pension.  Win win!

eca05mb

Thank you, that's really helpful.

Does the sacrifice of £25k salary have to be done via a work pension or can in be through a private pension I personally can take out?
Also if I have an annual bonus issued - does this have to be all routed via pension - to make sure it does not take me over the £100k figure - or does this not count as part of my net adjusted salary?

Thank you again!

Dazed_and_C0nfused

eca05mb said:

Thank you, that's really helpful.

Does the sacrifice of £25k salary have to be done via a work pension or can in be through a private pension I personally can take out?
Also if I have an annual bonus issued - does this have to be all routed via pension - to make sure it does not take me over the £100k figure - or does this not count as part of my net adjusted salary?

Thank you again!

The chances of your employer agreeing to that are slim to nothing.  They could have 100 employees and have to deal with 100 different pension schemes/systems 😳.

You may be able to do partial transfers from your employers scheme to your own pension but that depends on the terms of the employer scheme.

A bonus is just extra taxable income.  So £10k bonus will add £10k to your adjusted net income.  But £10k you agree to sacrifice in return for employer pension contributions will add £0 to your adjusted net income.

And don't forget taxable interest and dividends are part of your ANI, even if they are taxed at 0%.

eca05mb

Thanks - this has been really helpful. Do you know if there is a maximum amount that you can put into your pension or is this dependent on the employers scheme?

Dazed_and_C0nfused

eca05mb said:

Thanks - this has been really helpful. Do you know if there is a maximum amount that you can put into your pension or is this dependent on the employers scheme?

The annual allowance is £60k.  This includes any contributions you make, any basic rate relief the pension company adds to your contributions and employer contributions.  Just to be clear salary sacrifice results in employer contributions, there is no tax relief added to those.

You can also use unused annual allowance from the previous 3 years in some instances but only once this years £60k has been used.  And you must have been the member of a pension scheme in those years.

https://www.royallondon.com/guides-tools/pension-guides/pension-basics/pension-allowances/