“Adjusted net income” can someone help me with this.
Discussion
so I currently receive just under 90 quid a month for child benefit. I dont actually think I deserve it but mine is not to reason why and it comes in handy.
anyway, my question is this:
my wife is a part time teacher and earns well under 50k so no issue there.
I earn over 50 (and next year it will be about 60k), but because of the compulsory pension contributions I make, and because of the optional pension contributions I elect to make, that brings me in a few grand under 50k for the purposes of net adjusted income. so thats all fine.
the issue I have is that I'm about to get a cheque for 50k. I will need this cash in about 14 months at which point the whole lot will be used to pay off the mortgage on my house.
I am about to get a pay rise next year which will bring me in at about 60k gross. My compulsory pension contribs will go up in line with that increase, so I lose a bit of cash there for the purposes of reducing my net adjusted income to under 50 grand. however, even with increasing my optional pension contribs to something approaching the max (which is 600 a month I think), I will still be skirting fairly uncomfortably close to the 50k mark.
The 50k of savings I have will get about 800 quid of interest over the year. I have a small amount of savings elsewhere, and the total interest gained for the whole lot will be just under 1k for the year. I understand I get 1k of tax free interest allowed each year.
my question is this: with the just under 1k of interest I'll be getting on my savings, which are tax free, it isn't clear whether this amount,whilst tax free, is taken into account for the net adjusted income purposes of child benefit and the higher earnings charge- i.e is it counted as income for the purposes of the higher tax charge for child benefit. My googling today didnt give me a clear answer. I appreciate I can circumvent the whole issue by putting the lot (or a large chunk of it) into premium bonds, but with the reduction in the prize pool, i'd prefer to know I am going to get 800 quid in interest rather than the 2/300 quid i'll probably inevitably get if I do buy a load of PBs.
any pointers would be gratefully received...
anyway, my question is this:
my wife is a part time teacher and earns well under 50k so no issue there.
I earn over 50 (and next year it will be about 60k), but because of the compulsory pension contributions I make, and because of the optional pension contributions I elect to make, that brings me in a few grand under 50k for the purposes of net adjusted income. so thats all fine.
the issue I have is that I'm about to get a cheque for 50k. I will need this cash in about 14 months at which point the whole lot will be used to pay off the mortgage on my house.
I am about to get a pay rise next year which will bring me in at about 60k gross. My compulsory pension contribs will go up in line with that increase, so I lose a bit of cash there for the purposes of reducing my net adjusted income to under 50 grand. however, even with increasing my optional pension contribs to something approaching the max (which is 600 a month I think), I will still be skirting fairly uncomfortably close to the 50k mark.
The 50k of savings I have will get about 800 quid of interest over the year. I have a small amount of savings elsewhere, and the total interest gained for the whole lot will be just under 1k for the year. I understand I get 1k of tax free interest allowed each year.
my question is this: with the just under 1k of interest I'll be getting on my savings, which are tax free, it isn't clear whether this amount,whilst tax free, is taken into account for the net adjusted income purposes of child benefit and the higher earnings charge- i.e is it counted as income for the purposes of the higher tax charge for child benefit. My googling today didnt give me a clear answer. I appreciate I can circumvent the whole issue by putting the lot (or a large chunk of it) into premium bonds, but with the reduction in the prize pool, i'd prefer to know I am going to get 800 quid in interest rather than the 2/300 quid i'll probably inevitably get if I do buy a load of PBs.
any pointers would be gratefully received...
If you're a higher rate tax payer, you're only allowed £500 interest before tax.
If you don't need the pay rise, I would recommend setting up an additional pension (SIPP, see the intelligent money thread) and contribute enough from your new salary to that to keep you under the £50k - this avoids the need for any tax returns etc. You can also explore putting £20k into a S&S ISA which could bring you better returns, and the interest isn't subject to tax.
That said, if your total adjusted income is £51k, you don't have to repay the full child benefit back - Only 10% of it.
Ref the cheque - Does it relate to income or is it a gift?
If you don't need the pay rise, I would recommend setting up an additional pension (SIPP, see the intelligent money thread) and contribute enough from your new salary to that to keep you under the £50k - this avoids the need for any tax returns etc. You can also explore putting £20k into a S&S ISA which could bring you better returns, and the interest isn't subject to tax.
That said, if your total adjusted income is £51k, you don't have to repay the full child benefit back - Only 10% of it.
Ref the cheque - Does it relate to income or is it a gift?
Edited by B9 on Thursday 20th February 13:38
B9 said:
If you're a higher rate tax payer, you're only allowed £500 interest before tax.
If you don't need the pay rise, I would recommend setting up an additional pension (SIPP, see the intelligent money thread) and contribute enough to that to keep you under the £50k - this avoids the need for any tax returns etc.
That said, if your total adjusted income is £51k, you don't have to repay the full child benefit back - Only 10% of it.
Ref the cheque - Does it relate to income or is it a gift?
ah bIf you don't need the pay rise, I would recommend setting up an additional pension (SIPP, see the intelligent money thread) and contribute enough to that to keep you under the £50k - this avoids the need for any tax returns etc.
That said, if your total adjusted income is £51k, you don't have to repay the full child benefit back - Only 10% of it.
Ref the cheque - Does it relate to income or is it a gift?
ks I forgot that it would reduce to 500 quid when I got the payrise. So thats another 500 quid I need to lose! the cheque in an inheritance.
it wasnt the 50k inheritance I am worried about (but appreciate the replies) its the interest i'll be getting off it that I am concerned about. There is very little room for error with this unless I mess about setting up another pension or do a tax return, neither of which I really want to do...
princeperch said:
it wasnt the 50k inheritance I am worried about (but appreciate the replies) its the interest i'll be getting off it that I am concerned about. There is very little room for error with this unless I mess about setting up another pension or do a tax return, neither of which I really want to do...
Assuming you don't have any other salary sacrifice schemes in place, you'll need to contribute 17% of your £60k salary to keep you below £50k, which means:1) You won't have to repay any child benefit
2) You'll have the £1k tax free interest allowance
However, AFAIK interest counts as income. So if you adjust your salary down to £49,500 but earn £800 interest, you'll be considered to have earned £50,300 and will need to do a self assesment, repay 3% of the child benefit you received and pay 40% on the £300 interest over the (new) £500 limit.
For that reason, I would suggest either:
1) Putting your savings into either Premium bonds, ISAs or S&S ISA (you can put £20k in before April, and £20k after April). Or just half of it.
2) Contribute more to your pension, to create a £1k/£2k buffer. I'm assuing you don't receive bonuses of any sort (incl christmas)?
Edited by B9 on Thursday 20th February 14:27
B9 said:
princeperch said:
it wasnt the 50k inheritance I am worried about (but appreciate the replies) its the interest i'll be getting off it that I am concerned about. There is very little room for error with this unless I mess about setting up another pension or do a tax return, neither of which I really want to do...[/
Assuming you don't have any other salary sacrifice schemes in place, you'll need to contribute 15% of your £60k salary to keep you below £50k, which means:
1) You won't have to repay any child benefit
2) You'll have the £1k tax free interest allowance
However, AFAIK interest counts as income. So if you adjust your salary down to £49,500 but earn £800 interest, you'll be considered to have earned £50,300 and will need to do a self assesment, repay 3% of the child benefit you received and pay 40% on the £300 interest over the (new) £500 limit.
For that reason, I would suggest either:
1) Putting your savings into either Premium bonds, ISAs or S&S ISA (you can put £20k in before April, and £20k after April). Or just half of it.
2) Contribute more to your pension, to create a £1k/£2k buffer. I'm assuing you don't receive bonuses of any sort (incl christmas)?
thanks v much - this is sort of what I had feared would be the case. Looks like I'll need to be a bit more creative with things and I think its sensible to have more of a buffer as you suggest . but no bonuses (unfortunately!)Assuming you don't have any other salary sacrifice schemes in place, you'll need to contribute 15% of your £60k salary to keep you below £50k, which means:
1) You won't have to repay any child benefit
2) You'll have the £1k tax free interest allowance
However, AFAIK interest counts as income. So if you adjust your salary down to £49,500 but earn £800 interest, you'll be considered to have earned £50,300 and will need to do a self assesment, repay 3% of the child benefit you received and pay 40% on the £300 interest over the (new) £500 limit.
For that reason, I would suggest either:
1) Putting your savings into either Premium bonds, ISAs or S&S ISA (you can put £20k in before April, and £20k after April). Or just half of it.
2) Contribute more to your pension, to create a £1k/£2k buffer. I'm assuing you don't receive bonuses of any sort (incl christmas)?
I can remember years ago putting a sum of money into a fixed term insurance company bond.
That particular one was for a period of one year. At maturity the repayment was of the original capital plus an agreed bonus amount.
You can see there was no interest and the additional bonus was not paid until the end.
Perhaps something structured like that might be appropriate, whereby you don't receive any interest or bonus amount, in the tax year you are concerned about.
B9 said:
princeperch said:
it wasnt the 50k inheritance I am worried about (but appreciate the replies) its the interest i'll be getting off it that I am concerned about. There is very little room for error with this unless I mess about setting up another pension or do a tax return, neither of which I really want to do...
Assuming you don't have any other salary sacrifice schemes in place, you'll need to contribute 17% of your £60k salary to keep you below £50k, which means:1) You won't have to repay any child benefit
2) You'll have the £1k tax free interest allowance
However, AFAIK interest counts as income. So if you adjust your salary down to £49,500 but earn £800 interest, you'll be considered to have earned £50,300 and will need to do a self assesment, repay 3% of the child benefit you received and pay 40% on the £300 interest over the (new) £500 limit.
For that reason, I would suggest either:
1) Putting your savings into either Premium bonds, ISAs or S&S ISA (you can put £20k in before April, and £20k after April). Or just half of it.
2) Contribute more to your pension, to create a £1k/£2k buffer. I'm assuing you don't receive bonuses of any sort (incl christmas)?
Edited by B9 on Thursday 20th February 14:27
Putting an amount equal to this interest into your pension will take you out of this tax bracket and mean you do not need to complete a self assessment though, so is likely to be money well spent.
For the sake of clarity, it doesn't matter what level of tax free interest you get, your income (after pension contributions - which are not counted) is all grouped together for Child Benefit calculations.
JulianPH said:
B9 said:
princeperch said:
it wasnt the 50k inheritance I am worried about (but appreciate the replies) its the interest i'll be getting off it that I am concerned about. There is very little room for error with this unless I mess about setting up another pension or do a tax return, neither of which I really want to do...
Assuming you don't have any other salary sacrifice schemes in place, you'll need to contribute 17% of your £60k salary to keep you below £50k, which means:1) You won't have to repay any child benefit
2) You'll have the £1k tax free interest allowance
However, AFAIK interest counts as income. So if you adjust your salary down to £49,500 but earn £800 interest, you'll be considered to have earned £50,300 and will need to do a self assesment, repay 3% of the child benefit you received and pay 40% on the £300 interest over the (new) £500 limit.
For that reason, I would suggest either:
1) Putting your savings into either Premium bonds, ISAs or S&S ISA (you can put £20k in before April, and £20k after April). Or just half of it.
2) Contribute more to your pension, to create a £1k/£2k buffer. I'm assuing you don't receive bonuses of any sort (incl christmas)?
Edited by B9 on Thursday 20th February 14:27
Putting an amount equal to this interest into your pension will take you out of this tax bracket and mean you do not need to complete a self assessment though, so is likely to be money well spent.
For the sake of clarity, it doesn't matter what level of tax free interest you get, your income (after pension contributions - which are not counted) is all grouped together for Child Benefit calculations.
No, in your scenario your income would be less than £50k so you wouldn't pay any CB back
If you did all of that, but then earned more than £1,000 interest on savings, then you'd have to pay back the relevant % of the CB you earned over the year on the sliding scale of repaying 10% for every £1,000 you earn over £50,000 (capped at £60k, by which point you pay it all back).
Given that this subject relates to children and CB, if you happen to be on the existing childcare voucher scheme (and not the new tax free childcare) via salary sacrifice, don't forget that also comes out of your your income. I think it's £120 a month.
If you did all of that, but then earned more than £1,000 interest on savings, then you'd have to pay back the relevant % of the CB you earned over the year on the sliding scale of repaying 10% for every £1,000 you earn over £50,000 (capped at £60k, by which point you pay it all back).
Given that this subject relates to children and CB, if you happen to be on the existing childcare voucher scheme (and not the new tax free childcare) via salary sacrifice, don't forget that also comes out of your your income. I think it's £120 a month.
Edited by B9 on Thursday 20th February 17:01
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