How to split unexpected increase in nursery fees

[fuzzyduckling125]

More of a moral dilemma than a money question per se.

We have two DC, the younger of whom will turn 3 at the end of the year and is in nursery full time. To help with nursery fees, we use Tax Free Childcare and 15 free hours and were looking forward to 30 free hours from January. It's a considerable saving.

DH and I have separate bank accounts which our respective salaries are paid into. Since moving in together 15 years ago we've always split all bills and household expenses 50/50 and then the remaining money is ours to do what we want with.

When we first lived together DH earnt a lot less than I did but still insisted on 50/50. For the last 5 years or so we've had roughly equal salaries, however DH has just got a big (very well-deserved and long overdue) promotion which has taken his salary over the threshold for all the childcare benefits. So instead of going down as planned, our payments will go up. The difference between what I thought we'd be paying from January and what we'll actually be paying is about £500 a month.

So, my question - should we split the increase 50/50 as we do with everything else, or should I ask DH to cover all/more of it as he is the one who's gone over the threshold?

(Yes I am aware that this is a first world problem and I'm not disputing the threshold itself, I just want people's views on what the right thing to do is in my situation.)

So you're asking "should my DH's payrise mean I'm significantly worse off each month, due to gov't rules I can't control"?

Yes, your DH should be covering the gap.

You’ve agreed to 50/50 his portion and yours will both go up.
Hopefully in other ways it will even out.

How far over the £100k has he gone? Can he look at increasing pension contributions etc to get back under the threshold?

Unless he's earning around £130k (which I understand is what you'd need to earn to compensate for the loss of childcare, personal allowance etc), I'd echo the above poster and suggest he just ups his pension contributions so that you don't lose the funding.

When we first lived together DH earnt a lot less than I did but still insisted on 50/50.

Were you married at the time? I would never agree to strict 50:50 when married but you did, even when he earned significantly less.

I agree that increasing pension and staying under is the solution to the current issue. But what if someone gets sick, disabled, demoted, fired, etc. etc.?

I agree with others that I would look at him paying the increase (or the amount over the threshold) into his pension.

If you don't want to / can't do that, I'd suggest that now he earns considerably more than you, you look at splitting your contributions to family expenses in proportion to your salaries.

Why didn’t he think about this before taking the promotion?

My first thought too was pay excess into his pension.

You pay half of what it would be if he earnt under £100k, he pays the rest (or salary sacrifices back under)

Probably because childcare costs are temporary and the promotion is presumably permanent

I'd look into increasing his pension contributions.

Seriously?! Err because a promotion will last a lot longer than nursery fees!

echo everyone else - up pension contribution temporarily but if not then he pays excess

I'd suggest taking this as a prompt to reassess your approach to family finances. You started out with a 50/50 arrangement when you were a couple. Now you have two children which makes a difference. How do you account currently for the children's expenses? Who buys clothes, toys, treats, pays for day out? I'm sure there is a grey area between "household expenses" and "money I'm doing what I want with". If you have capacity to save - which hopefully now you might, or in future when nursery finished, where does this fit in? Are you saving anything for the children directly? Have you life insurance / is any other insurance worth investigating?

Going through your family financial commitments first, might make it then feel more reasonable to bring up alternative models such as, everything goes into the pot out of which you then both get equal amounts to do what you like with.

I do think the most important bit is understanding just what gets spent on the children!

Thanks all, interesting responses!

Apparently there's a scheme at his work where you can only increase pension contributions once a year in April. His basic salary is exactly 100k so existing pension contributions would actually keep him under the threshold but there's a variable annual bonus which is trickier to budget for.

Does his company allow him to put the bonus into the pension? Some companies do.

Can he drop down to 9 days a fortnight? Might be enough to bring him below the threshold.

Our bonus I get paid into my pension as UC and tax take most of it otherwise..

but in answer to your original question yes it should be 50/50 … you accepted 50/50 when you were the higher earner

He can open a SIPP (self invested pension) and put money into that as and when he knows what his bonus is. It will also prevent any bonus being taxed at 62%.

Might be worth consulting an accountant. It cost me about £170 to do so and get a forecast. But anything over £99.99k can go in the pension. The government tops it the pension up by 20% automatically, and then you claim back 42% back in your self assessment. (This might be changing under labour though) But also you're eligible for the free childcare then

Should definitely get advice in that case, you will be much better off in he can invest into a SIPP or similar. The £100k cliff edge is penal and you're not better off til earning £130k plus.
Also it only relates to the tax year (April-March) so if he's only just got the pay rise it may not impact you until April next year if under the threshold this year.

Bonuses are generally paid in April and you can choose to salary sacrifice all of it. Might find he sneaks in under the cap this year anyway if he's only just started and it's a decent bump.