Child Benefit Tax Charge
Discussion
Tom8 said:
Is it just me who is amazed that we are paying out benefits to people on such high incomes, combined or single? And then wonder why we can't afford anything?
For my wife, it meant her NI contributions continued whilst she was out of work for 4 years (even though I had to repay the whole lot of CB due to 60k+ salary) rather than being penalised for being a stay-at-home mum.Tankrizzo said:
For my wife, it meant her NI contributions continued whilst she was out of work for 4 years (even though I had to repay the whole lot of CB due to 60k+ salary) rather than being penalised for being a stay-at-home mum.
That would have been the same for me but seems we should get to keep it now.Hondashark said:
Its even better than that as its in the 40% tax bracket
Put a £4k lump sum in your pension and the provider should top that up to £5k. Then do a self assessment (you can write to the HMRC but I find they don't reply/look at your letter for a very long time) and the HMRC will refund you the other £1000 in tax you effectively overpaid (the second 20%.)
So that £5k in your pension has only cost you £3k and you don't have to pay back £624. (For me it would be over £1k I don't have to pay back as I have 2 kids. Definite no brainer)
I wondered about that, because whilst you end the year in the 20% bracket, you are correct you've spent the year paying out at 40%. What happens to that second 20%, assume HMRC direct it back to the pension provider?Put a £4k lump sum in your pension and the provider should top that up to £5k. Then do a self assessment (you can write to the HMRC but I find they don't reply/look at your letter for a very long time) and the HMRC will refund you the other £1000 in tax you effectively overpaid (the second 20%.)
So that £5k in your pension has only cost you £3k and you don't have to pay back £624. (For me it would be over £1k I don't have to pay back as I have 2 kids. Definite no brainer)
RenesisEvo said:
Hondashark said:
Its even better than that as its in the 40% tax bracket
Put a £4k lump sum in your pension and the provider should top that up to £5k. Then do a self assessment (you can write to the HMRC but I find they don't reply/look at your letter for a very long time) and the HMRC will refund you the other £1000 in tax you effectively overpaid (the second 20%.)
So that £5k in your pension has only cost you £3k and you don't have to pay back £624. (For me it would be over £1k I don't have to pay back as I have 2 kids. Definite no brainer)
I wondered about that, because whilst you end the year in the 20% bracket, you are correct you've spent the year paying out at 40%. What happens to that second 20%, assume HMRC direct it back to the pension provider?Put a £4k lump sum in your pension and the provider should top that up to £5k. Then do a self assessment (you can write to the HMRC but I find they don't reply/look at your letter for a very long time) and the HMRC will refund you the other £1000 in tax you effectively overpaid (the second 20%.)
So that £5k in your pension has only cost you £3k and you don't have to pay back £624. (For me it would be over £1k I don't have to pay back as I have 2 kids. Definite no brainer)
RenesisEvo said:
I saw this video which got me thinking about how I might be able to reduce/avoid the charge for the current tax year, ahead of the changes in April.
https://www.youtube.com/watch?v=pE2V83OybUo
I've been doing some maths to see if I'd benefit from shifting cash from 'savings' into a pension. Some made up numbers: assume a taxable income of £55k for FY23-24, this would mean HRMC want 50% of the child benefit back, i.e. £624. However, if you made a personal pension contribution of £4k, this becomes £5k gross contribution, taking your taxable income down to £50k. Therefore saving the £624 child benefit because the charge no longer applies.
If I've done that right, you'd have gained £1624 by moving £4k into a pension - assuming you can afford to do so. Downside is that £4k is locked away. However it will still be earning - and in a tax free wrapper too (I know, ISAs).
Have I got that right?
That’s probably about the best video he’s ever made. He actually explains it pretty simply and succinctly. https://www.youtube.com/watch?v=pE2V83OybUo
I've been doing some maths to see if I'd benefit from shifting cash from 'savings' into a pension. Some made up numbers: assume a taxable income of £55k for FY23-24, this would mean HRMC want 50% of the child benefit back, i.e. £624. However, if you made a personal pension contribution of £4k, this becomes £5k gross contribution, taking your taxable income down to £50k. Therefore saving the £624 child benefit because the charge no longer applies.
If I've done that right, you'd have gained £1624 by moving £4k into a pension - assuming you can afford to do so. Downside is that £4k is locked away. However it will still be earning - and in a tax free wrapper too (I know, ISAs).
Have I got that right?
Given how often the question comes up it should be pinned to the top,of the forum.
Indeed, that £50k to £60k bracket (2023/24) has been such an attractive situation to contribute more into the pension. Take home a £few hundred more in my pay packet or dump £thousands extra into the pension.
I do like the rather chunky tax rebate that HMRC gives me after each self assessment form. I'm so glad I looked into these rules.
I do like the rather chunky tax rebate that HMRC gives me after each self assessment form. I'm so glad I looked into these rules.
The Rotrex Kid said:
The Rotrex Kid said:
If anyone (professional) would like to give me a bit of advice (paid or free!) about a bit of a HICBC/Tax band/Pay rise/bonus quandry, would they please make themselves known? I'm struggling to get my head around the best way forward!
Bump for the weekend crew!CorradoTDI said:
The Rotrex Kid said:
The Rotrex Kid said:
If anyone (professional) would like to give me a bit of advice (paid or free!) about a bit of a HICBC/Tax band/Pay rise/bonus quandry, would they please make themselves known? I'm struggling to get my head around the best way forward!
Bump for the weekend crew!I've just been checking my figures on this now I have sight of my March payslip.
One thing that tripped me up - the benefit charge is for net adjusted income over £50,000. The higher rate tax starts at £50,270. Not the same numbers! I had wrongly used the 50270 number initially, so I need to slightly increase the planned pension contribution.
One thing that tripped me up - the benefit charge is for net adjusted income over £50,000. The higher rate tax starts at £50,270. Not the same numbers! I had wrongly used the 50270 number initially, so I need to slightly increase the planned pension contribution.
RenesisEvo said:
I've just been checking my figures on this now I have sight of my March payslip.
One thing that tripped me up - the benefit charge is for net adjusted income over £50,000. The higher rate tax starts at £50,270. Not the same numbers! I had wrongly used the 50270 number initially, so I need to slightly increase the planned pension contribution.
This is what happens when tax changes are made in isolation with no though at all for the complexities the changes introduce.One thing that tripped me up - the benefit charge is for net adjusted income over £50,000. The higher rate tax starts at £50,270. Not the same numbers! I had wrongly used the 50270 number initially, so I need to slightly increase the planned pension contribution.
Annoyingly, I cocked up. Company agreed a pay deal at the end of Feb back dated to last April so we are due a lump sum and 11 months back pay.
Stupidly assumed they would get it sorted quickly and in March's pay so being clever upped my pension contributions to 40% to "save" the NI and I've been overpaying pension all year in preparation.
Yeah, they aren't paying it until April. Nearly 2 months to get money owed feels ridiculous.
So it means I'm ending this year a good few £k under the £50k and starting next year badly. Also means if I want to keep it I'll have lost 12% (30% tax+NI if they had paid it this month compared to 42% tax + NI in April's pay).
Thankfully I have the option to keep it next year as 42% feels better than 63% with 2 kids. With these payrises I'm going to have to watch the £60k for next March though.
Stupidly assumed they would get it sorted quickly and in March's pay so being clever upped my pension contributions to 40% to "save" the NI and I've been overpaying pension all year in preparation.
Yeah, they aren't paying it until April. Nearly 2 months to get money owed feels ridiculous.
So it means I'm ending this year a good few £k under the £50k and starting next year badly. Also means if I want to keep it I'll have lost 12% (30% tax+NI if they had paid it this month compared to 42% tax + NI in April's pay).
Thankfully I have the option to keep it next year as 42% feels better than 63% with 2 kids. With these payrises I'm going to have to watch the £60k for next March though.
Gassing Station | Finance | Top of Page | What's New | My Stuff