30 hours free over 100k salary

[ohthejoysoftoddler]

I've been going round in circles trying to work out the best course of action.

I've got a child who is eligible for 30 hours free childcare, at the moment. Plus government top up.

West London so expensive nursery fees.

Bonuses are about to take me over 100k, to about 110k. I know I can pay into my pension. But at what point does that not become worthwhile?

What do you mean not worthwhile ? As in go part time and cut salary to be entitled to the free hours?

I made a spreadsheet for DH calculating this. Looking at net income depending on paying different amounts into his pension and effect on tax and childcare costs.

At the £100-120k mark it’s def worth it as you’ll also be getting back some of your personal allowance.

You should definitely put enough in your pension to get you under the 100k.

At 100k you’ll start losing your personal allowance and have none by 125k. You effectively pay 60% tax between 100k and 125k. Then with kids, you lose your 30 hours free and tax free childcare allowance once you hit £100k.

It’s a no brainer to stay under 100k in your situation.

If you can do without the cash now it’s always going to be better to pay into your pension. You get the 40% tax relief, you don’t lose your personal allowance and you don’t lose the free childcare. We currently both contribute about 50k to our pensions each year to bring us back under 100k as we don’t need the money right now.

As PP says, worth getting yourself under £100k if you can just to avoid that £100-£125k-ish bracket. If you do want the full 30 hours though make sure you definitely get below £100k because it's an absolute cutoff so if you're 1p over you lose the extra 15 hours.

Its up to you when it becomes not worthwhile, I suppose when you'd rather lose the 15hrs but have the cash to spend rather than putting it into your pension.

I think your best bet is a spreadsheet as the worthwhile cut off depends on your personal circumstances - your hourly rate for childcare, how many children you have, whether you expect to be impacted by the new system (ie depending on the ages of your children or children you plan to have).

Here are some articles demonstrating what the impact can be but they are focussed on the extreme cases under the new free hours plan when it was announced in early 2023. So they aren't totally useful but demonstrate your point.

"The example London parent above could, if earning £139,000, put £40,000 into their pension pot and still have higher disposable income today than if they contributed nothing."
https://ifs.org.uk/news/childcare-reforms-create-new-branch-welfare-state-also-huge-risks-market#:~:text=The%20example%20London%20parent%20above%20could%2C%20if%20earning%20%C2%A3139%2C000%2C%20put%20%C2%A340%2C000%20into%20their%20pension%20pot%20and%20still%20have%20higher%20disposable%20income%20today%20than%20if%20they%20contributed%20nothing.

https://ifamagazine.com/hunts-new-childcare-plans-make-punitive-100000-earnings-cliff-edge-eye-watering/

https://www.mumsnet.com/talk/_chat/4793155-childcare-100-tax-rate-over-ps100k

Me and my partner manage our pension contributions to bring us under the 100k. It means we save on the 60% tax, the tapering of the personal allowance and we can still claim the tax free childcare element.

The pension will likely be taxed at the maximum 40% based on my pot projection so it's a no brainer.

This is so helpful, thank you everyone. I had a suspicion that I should pay into the pension. Slightly frustrating though isn't it - of that 10k over, I've got to find about 4K because the tax man has already taken it! But I'll know for next year to be putting cash away through the year for it.

I suppose then, it's worthwhile to keep doing this till you push past the 125k mark.

If you’re paying into a private pension the tax works slightly differently. Check with your pension provider because in most cases HMRC adds an extra 25% and it’s the grossed up figure you use to calculate your net income for the childcare. Ie you only need to add 8k because HMRC adds 2k to make it up to 10k. I know that’s not a great explanation but I’ve got a newborn and no time! Hopefully that gives you enough info to look into yourself 😊