Child benefit / pension contribution

[memberofseven]

Can anyone help me work this out please? I've put the figures into various calculators but they all come up with different figures.

My annual gross salary (dh earns much less) is £66k. I claim cb for four children so around £3.3k a year. Obviously I am subject to the tax charge (don't get me started on how unfair it is that a household on £100k can still claim it).

I'm trying to work out if I can mitigate the charge by overpaying into my pension.

I currently contribute 5% so my take home is £3600 a month. My employer pays 5% but I don't think I can deduct that.

Presumably I won't need to put the whole £16k in due to tax relief but I'm going around in circles trying to work it out.

I need to keep my take home as high as possible but the child benefit is worth £250 a month to me
So I would like to keep it if I can.

Thanks v much.

Maybe contact a tax advisor? I'd be more concerned with the amount of income tax you pay, earning over the £50,000 (increasing to 40% taken from your salary rather than the 20% if you earn below £50k) So paying more into your pension would reduce this too ...

I didn't realise there was a tax on Child Benefit.

Yes that's what I'm trying to work out, as I think I might be only marginally worse off monthly whilst putting a massive amount in my pension.

If you don't want to pay any of the tax charge, you need to get your income down to £50k so pay £16,000 or about 24%.

That's assuming you do it through your work pension and your pension contributions are taken out before tax. If you are paying into a pension from your post tax income, you will need to pay a bit less.

You can put 50k into a calculator to work out what your take home would be but it's worth it if you can afford it.

Between 50k and 60k of income you pay HICBC at 1% of your child benefit for ever £100. If your child benefit is £3k a year, that is £30 for every extra £100 you earn.

Add £40 of tax and £2 of NI, you face an effective marginal tax rate of 72%. That meana post tax reduction in income of £1 will get you £3.50 in pension.

Thanks. That's helpful. Don't I gross it up so £12,800? That's what the HMRC advice seems to say.

not unless you are planning to do this as a lump sum contribution from your current funds that have already had tax paid on them.

nb any contributions you have made to charity can also be deducted from the £66k to bring it closer to the threshold

also consider whether to ask your employers to let you drop your hours by 10% and have a half day off every week (or a whole day every fortnight). that would take care of a big chunk of the £16k reduction you need and I bet the kids would appreciate the additional time and attention.

there is both an annual and a lifetime ceiling on pension contributions - I don't think you likely to reach this currently though.

whatever way you slice it, you will be worse off day to day doing this. you will of course get a more comfortable retirement, but tbh I think the money is more valuable to you now than in 20 years.

You will need to put in the £16k What you will find is that the pension providers website will have a web page which will calculate the net amount as they will automatically take account and claim back the 20% tax deducted at source UNLESS you can increase the pension deductions at source from your salary. You would need to then do self assessment to declare the pension payment unless your employer increases your contribution at source

In essence, putting in the surplus to a pension will mean saving tax at (I think for you ) 80% between £50-60k and 40% for the remaining £6k. So net that means a reduction in take home pay £5600 but you get to keep the child benefit of£3000 per annum. Therefore the net cost to yourself is £2600 but you get a massive pension boost.

If you pay it by lump sum, you will need to tell HMRC what you will pay in as tiger wise you will have most taken in tax and have to reclaim CIA self assessment which means a massive outlay until you claim the tax back.. if you can do at source from employer it is better but you need to keep an eye on it at the end of the tax year to check in case you have had a pay rise or bonus

It is a crazy system and I can't believe a conservative government managed to make it so bloody complex and difficult

Note you have to be actually claiming the child benefit and this is a good idea anyway even for those over the threshold in case your income ever dropped below.

I wish I had looked into this earlier as my pension contributions so far this year stand at £4K with 3 months left to run!! Thanks everyone for all your helpful advice.

@MarieG10 is what you are saying is that if I can put it in at source (which I can as I'm allowed to change my contributions month to month) I only need to put in 80% (ie total £12800 - so less my contributions to date which grossed up are around £5k I need to find another £7.8k (ish) before March?

But if I put it in myself (it's a Sipp) I need to put in the full amount to £16k (so around £11k) and reclaim the additional tax paid at the end of the tax year?

Thanks so much.

Yes. The easiest is to get your employer to increase your contributions at source. In essence they will pay out of your salary and then tax you on what is left, less allowances. Really easy. Remember you will need to out in £16k over all and not the existing 5% you already do unless you want to but you have already covered that

If you out in yourself, you will be putting in 80% of £16k, so therefore £111800. The pension company will then claim back the £3200 tax.

The issue as I said above is that if you pay in yourself at the end of the year, you will have already been massively taxed so will need the cash sat in the bank and then claim the tax and child benefit hit j come charge back. That is unless you get the HMRC to adjust your tax code with the intention of paying it, but that is messy