Avoiding child benefit repayment

[Defcon5]

As I understand it, if you earn over £50,000 you have to repay any child benefit received (on some kind of sliding scale, where at £49,999 you repay nothing and at £55,000 you must repay it all (£1600ish))

I’m doing a lot of overtime currently, and will probably earn about £55,000 this year. After deductions, and having to repay the CHB I’d be left with about £1500 of this last 5k so not worth doing it!

Are the CHB repayment amounts described gross income, above the tax free allowance, or after pension deductions (6.8% for me) etc?

If the latter I could earn about £53,500 without having to repay it.

My pension scheme is a DB and I can’t increase the regular contributions but I can do additional voluntary contributions (seems to be paying into a separate DC pot with the same provider) so could I do that to ensure I stay below the CHB limits if I did more OT?

I can do OT for TOIL which is obviously plan B, but I’d like to maximise my take home.

[MaxFromage]

You repay child benefit between £50K and £60K, so each £100 earned is 1% of the child benefit repaid.

Your gross pension contributions reduce your income by that amount unless they are deducted from your income as salary sacrifice in the first place. So if you earned £60K and personally put £10K gross into a pension, you wouldn't have to repay any child benefit. If you can afford it, its a no-brainer.

[Carbon Sasquatch]

Defcon5 said:

I can do OT for TOIL which is obviously plan B, but I’d like to maximise my take home.

Do you want to maximise your take home - or pay the least tax even if it means deferring the benefit ?

As above - all you can really do is a salary sacrifice - into a pension or something else if your employer supports that.

What that means is kind of what it says - you sacrifice 5k - so your income is down from 55 to 50. The 5k is paid directly into a pension. The result is a better pension, but it doesn't help your take home. If you';re interested, you need to ask your employer whether they support salary sacrifice.

If you really want the max take home, then you just have to suck up the fact that you'll be losing most of the extra - as you've already figured out.

[Defcon5]

Max the take home without losing the CHB I meant.

My employer does the cycle to work scheme - does that work in the same way as pension contributions as far as reducing taxable salary goes?

[phope]

Defcon5 said:

My employer does the cycle to work scheme - does that work in the same way as pension contributions as far as reducing taxable salary goes?

Yes, it should do - check the details of the particular scheme

[Richieboy3008]

Open up a SIPP and stick the money in there if you can’t contribute to your work pension.

[Carbon Sasquatch]

Richieboy3008 said:

Open up a SIPP and stick the money in there if you can’t contribute to your work pension.

Does that help ?

I thought the only way around this was to 'earn' under £50k - which can be achieved through salary sacrifice - because you 'sacrifice' part of your salary in exchange for something, namely employer pension contributions. However, once you've earned the money, I'm not sure how a SIPP helps..... you can get the tax credit, but not the child benefit back - unless I'm missing something ?

[Richieboy3008]

It’s worth still claiming that child benefit even if you earn over 50-60k. I still claim it and put it into premium bonds each month, you never know…

[Jakg]

Defcon5 said:

As I understand it

I think your maths are a bit wrong.

Defcon5 said:

if you earn over £50,000 you have to repay any child benefit received (on some kind of sliding scale, where at £49,999 you repay nothing and at £55,000 you must repay it all (£1600ish))

The sliding scale is between £50k-£60k.

https://www.gov.uk/government/publications/high-in...

I'm not sure £1,600 is right either - that sounds wrong for one or two children - https://www.gov.uk/child-benefit/what-youll-get

Defcon5 said:

Are the CHB repayment amounts described gross income, above the tax free allowance, or after pension deductions (6.8% for me) etc?

It's your total taxable income - https://www.gov.uk/child-benefit-tax-charge#:~:tex...

Only if your pension is salary sacrifice (i.e. where your income taxable pay is reduced) would this affect it - a "regular" pension contribution out of (rather than before) your net pay would be irrelevant for the high income child benefit charge.

EDIT - Apparently this is wrong, see below.

Defcon5 said:

After deductions, and having to repay the CHB I’d be left with about £1500 of this last 5k so not worth doing it!

The charge is 1% of the child benefit for every £100 you earn - https://www.turn2us.org.uk/Benefit-guides/Child-Be...

Assuming you get £1,600 a year, that means every £100 you earn, loses you £16 of child benefit (i.e. 16% marginal rate) - or from your £5k, £800.

[mfmman]

Carbon Sasquatch said:

Richieboy3008 said:

Open up a SIPP and stick the money in there if you can’t contribute to your work pension.

Does that help ?

I thought the only way around this was to 'earn' under £50k - which can be achieved through salary sacrifice - because you 'sacrifice' part of your salary in exchange for something, namely employer pension contributions. However, once you've earned the money, I'm not sure how a SIPP helps..... you can get the tax credit, but not the child benefit back - unless I'm missing something ?

No, you will be able to use your self assessment to reduce your 'net adjusted income' and recover the child benefit if you pay enough into your personal pension

SalSac is better where possible as you avoid paying NI as well, but they both work

EDIT As I posted, a contrary opinon was posted, pretend you are a financial advisor and read the below link

https://adviser.royallondon.com/technical-central/...

Edited by mfmman on Saturday 25th June 19:19

[Richieboy3008]

Carbon Sasquatch said:

Richieboy3008 said:

Open up a SIPP and stick the money in there if you can’t contribute to your work pension.

Does that help ?

I thought the only way around this was to 'earn' under £50k - which can be achieved through salary sacrifice - because you 'sacrifice' part of your salary in exchange for something, namely employer pension contributions. However, once you've earned the money, I'm not sure how a SIPP helps..... you can get the tax credit, but not the child benefit back - unless I'm missing something ?

Yes you’re right, but with the tax relief you get (as you’d be a 40% tax payer)you could potentially net out the amount you receive in CB if you put enough into the pension. Just make sure to do a self assessment every year.

[Carbon Sasquatch]

mfmman said:

No, you will be able to use your self assessment to reduce your 'net adjusted income' and recover the child benefit if you pay enough into your personal pension

SalSac is better where possible as you avoid paying NI as well, but they both work

Thanks - didn't realise you could do it retrospectively - I thought you needed to sacrifice up front - every day is a school day.

Either way - and back to OP's question, I don't know of a loophole - you either get hit with the tax & lose CB - or you keep your salary under 50k and exchange the rest for another benefit like a pension.

There isn't a way to max our 'take home' outside that is there ?

[Carbon Sasquatch]

Richieboy3008 said:

It’s worth still claiming that child benefit even if you earn over 50-60k. I still claim it and put it into premium bonds each month, you never know…

Always claim the benefit - particularly if one of the parents is not working - and then make sure it's in their name.

Even if you end up with no actual cash, you get an NI credit for the year towards your state pension.

[Defcon5]

Thanks for the replies everyone

Yes it’s paid to my wife (whom earns about 10k) so she gets the NI stuff.

I assume I don’t need to do anything as long as it’s sorted prior to the end of the tax year? So I can see how much I need to salary sacrifice (as I know how much over 50k I’ll be)

[marked1]

I wish I knew about the high income child benefit charge before I did all the hours under the sun. The lovley people from HMRC sent me a bill a couple of years after I went over the cap. I had to pay around £5k back in total though one off payments and self assesments.

I remember the only way to avoid is pension or giving to charity. Salary sacrifice pension is not included as allowable deductions if I recall.(i.e the one taken automatically from your employer)

I don't understand why you are eligible to pay if one of you go over the threshold yet if both parents are on 49k then it's no problems. Other half didn't work over those years.

Sorry for the rant.

Edited by marked1 on Saturday 25th June 20:07

[mfmman]

marked1 said:

Salary sacrifice pension is not included as allowable deductions if I recall.(i.e the one taken automatically from your employer)

I don't understand why you are eligible to pay if one of you go over the threshold yet if both parents are on 49k then it's no problems. Other half didn't work over those years.

Sorry for the rant.

Edited by marked1 on Saturday 25th June 20:07

Your comment on Salary Sacrifice is not correct (unless you mean you can't claim it as an allowable deduction as you have already benefited from it once). It's definitely a way of avoiding the HICBC though

I'm with you on the second comment though

[MaxFromage]

Defcon5 said:

I assume I don’t need to do anything as long as it’s sorted prior to the end of the tax year? So I can see how much I need to salary sacrifice (as I know how much over 50k I’ll be)

Correct. Pensions are included in the year on a cash basis. So as long as you pay the pension payment over by the 5th April, it will count towards that year and will reduce your gross income for CB purposes.

[marked1]

mfmman said:

Your comment on Salary Sacrifice is not correct (unless you mean you can't claim it as an allowable deduction as you have already benefited from it once). It's definitely a way of avoiding the HICBC though

I'm with you on the second comment though

yes, sorry for the confusion this is what I meant. I could not claim it as an allowable deduction.

[MaxFromage]

marked1 said:

I don't understand why you are eligible to pay if one of you go over the threshold yet if both parents are on 49k then it's no problems. Other half didn't work over those years.

Sorry for the rant.

Edited by marked1 on Saturday 25th June 20:07

Indeed. It's a crap clawback so do what you can to negate it.

Other things that help are charitable donations- a lot of people forget things like National Trust membership is allowable and lots of other visits/attractions are too.

[Cl4rkyPH]

Sorry to hijack the thread but I’m MEGA confused about how child benefit is earned and repaid as a new dad also. This thread has just confused me more.

I earn over £60k, and my understanding from this thread is it’s generally still worth claiming.

My unmarried partner usually earns £40k, but is currently on statutory maternity pay (not sure if that’s relevant).

Our daughter was born in January but we haven’t received any benefit nor have we claimed for it yet.

1. Should I claim it in my name? Or should my partner claim it in her name? My thinking is for her to use it as a little extra cash to top up her maternity pay.

2. If my partner claims it, who pays it back? Does it come off her tax allowance, or off mine (as the person who earns over £60k)?

3. Will it be paid in one lump sum for all the months so far? And will it have to be paid back in one PAYE month too? If not, how is it paid back?

4. I recently submitted my self assessment for FY21/22 (I only do it to claim back the extra 20% tax relief on my pension). I didn’t mention anything about child benefit. Will this be a problem?

I have currently paused my pension payments (due to the higher cost of living), so salary sacrifice is not possible.

Again, really sorry for hijacking but this thread has now panicked me about my own situation.