>£100k salary and funded childcare

[UncleBunclesHouse]

I hope someone with a better grasp of all this can help as I’m terrible with numbers and tying myself in knots.

I earn £150k plus bonus comes to about 180

I am able to pay over the annual allowance into pension this tax year and next due to underpayment in recent years (mat leave/phased return etc) to bring my net taxable to under £100k

Youngest DC about to turn 3, if I do this I’ll get the 30 hours, will I also be entitled to tax free childcare??

Next point is that I haven’t been doing this so far, so would take decrease in pay to the tune of I think around £800 a month. I’m not sure if I can afford it, but I really want to do it because I think the offset of childcare funding would make up some of this.

Would really appreciate hearing from someone in a similar position, all I can find about this seems to be people in the early 100k range , for which it has very little impact on take home. Over £150k it seems to affect income more?

At 3, you will get 15 hours free anyway (that’s universal irrespective of income). So you will be taking a huge amount out of your annual pay to basically get 15 hours free childcare. Not sure on the tax free aspect as I don’t know anybody who does it, but I think most people once they get to around £125k would rather have the extra money now than put it all in pension to get a small amount of free childcare.

Realised I wasn’t very clear on what I was asking!

to clarify /TLDR - I am asking is it still worth/usual to pay into pension to get to <£100k for tax and childcare benefits if you earn more than £150k gross? Or is the hit on take home pay too high?

Tying yourself in knots?

You earn enough to pay someone to work this out for you.

(Yes I'm jealous, no I don't have pity for your upset at the financial hoops you have to jump through to get cut price childcare that cripples the rest of us)

@CuriousGeorge80 thank you, this is exactly what I was getting at- very badly!

@CuriousGeorge80 was far nicer than me.

I'll put myself in the naughty corner with my gruel

@OctogenarianDecathlete with respect, you have no idea as to my situation other than what I have posted here, and I am seeking financial advice but that advice gives the facts only. Not what others do. Please scroll past if you don’t like the title of the post.

I normally don't comment on these threads but trying to maximise a way to get 15 free hours of childcare whilst protecting your assets given your earnings package is a bit crass.

I earn a little more than that but had already maxed out on my 60k annual contributions so couldn’t avoid losing funded hours and tax free childcare when my DC arrived.

Your circumstances are slightly different. If you follow your suggested plan and keep your earnings after pension to below 100k for the year or 2 that your child is at nursery you will get the 30 funded hours and also be eligible for 20% tax free discount on payments you do make.

If your child was younger the impact of this would be greater as under the new rules they’d qualify for 30 funded hours at a younger age when those on over 100k get none. As it is you will still get 15 hours once they are 3 even if you earn over 100k so your saving is only 15 hours. This is term of time only so will be worth about 3k/4k to you which is what you need to consider against losing 800 per month pay albeit pay that is diverted into your pension.

I have to agree with PP that this post will jar.

Please scroll past if you don't like reading these comments OP!

🤐

No, you're right, I don't know.

And I absolutely am being completely unreasonable. I apologise for my inability to hide my envy.

But as a PP said, your income is phenomenal. Asking how you can boost your pension (many of us can't pay into a pension and pay for childcare) so that you can get free childcare is crass, to say the least.

You should consider proper financial advice. You've got more than enough money to deal with this.

I don't know your circumstances, but you don't know most other people's. Those years when my children were in full time childcare while we were both working full time and still not covering everything is still raw. You've no idea how hard it is for people on a more 'average' income. If you are lucky enough to be able to overpay into a pension to be able to take advantage of funding intended for people on average incomes, count yourself lucky, not hard done by.

Op it does look like evasions- you are asking how can I get the state to sub me a bit by squirrelling my huge salary away or taking a break from full time work or other life enhancing luxury's

Tax evasion and benefit manipulation are the same thing in my book

The OP is not claiming they are hard done by. All they are doing is trying to work out their most efficient course of action.

I earn a similar salary so appreciate their position. While it is of course a lot more than the average person earns I do not think it is unreasonable for them to look to structure their finances in the most efficient way possible. It is what everyone does.

On such salaries you pay income tax of levels up to 60%, pay up to 70k+ income tax every year and receive not a penny in return. The economy relies on people like that to fund everyone else.

If there is no childcare support you can find yourself in a position whereby you receive a 20k bonus and are actually worse off than not receiving it due to the high marginal rates of tax and childcare rules. Surely nobody thinks that is a desirable situation.

Tax rates at the top level are already way too punitive. High earners with kids are almost forced to either over pay into pensions or work less during the nursery years. That is not a good outcome for those parents or the economy as a whole.

It’s tax avoidance, not evasion - evasion is illegal, avoidance is planning.

OP, I think that you earn too far over the threshold to be worth trying to do this.

AFAIK it's based in pre tax income which would normally, if you are in employment, be pre pension contributions. So doesn't matter how much you sacrifice into pension it's still your total income that counts

Tax avoidance and tax evasion are 2 very different things.

Do you consider all pension contributions to be tax evasion?

That’s incorrect.

In all fairness, this is Money Matters. I think it's fine to ask.
We regularly get threads about women who claim to earn more where it turns out to be the bloke who's earning.

Men are talking about and doing all these things to save tax, keep costs down anyway. Happy to support a high earning women - even if I am getting a little green with envy!

Tend to agree with this.

Pay for financial advice.

Sorry - you are right there is a different meaning to the two words that no can't remember

No I don't see paying into a pension as avoiding or evading taxes .

But I do consider trying to pay more into a pension to then get money out of the government that is there to help people who are struggling , a safety net , as morally wrong

Well according to gov.uk

If you or your partner have an expected ‘adjusted net income’ over £100,000 in the current tax year, you will not be eligible

And adjusted net income it says:
Adjusted net income is total taxable income before any Personal Allowances and less certain tax reliefs, for example:

trading losses
donations made to charities through Gift Aid - take off the ‘grossed-up’ amount
pension contributions paid gross (before tax relief)

OP isn't looking for pity or claiming to be hard done by. She's posted this in money matters, not AIBU and is asking for factual advice. No need for her to read the room just to make others feel better.

If you were just on the threshold it could be understood but you are way over it. You might as well take your salary and pay for the childcare rather than try to get the free hours.

'Efficient' doing a lot of heavy lifting there ...

I completely agree it's not illegal in any sense and accept that it's in a specific money topic (which I only saw as it was in active) so better than in AIBU for example. And had the OP been hovering around the tax threshold I would have been more sympathetic but she's way over it and given the struggles many people face it feels a bit tone deaf.

On that salary I’m not sure it’s worth it to sacrifice that much salary for an extra 15 hours and tax free childcare. It would be different if you were not far over the 100k. Have you worked out how much the nursery fees would be with 30 hours and tax free childcare? The savings rate down as much as parents think they’ll be.