Avoiding tax cliff and keeping childcare benefit

[Francis2020]

Not looking to get into political rights and wrongs but ideally some practical advise.

I work hard and earn well.
Currently just keeping under £100k due to max pension contributions (carry forward also ate up) and electric EV.

As soon as I cross 100k I get hit with loss of personal allowance but more critically loose 30 hours of childcare - which is worth circa £20k of gross pay.
So I have to stay under that.

I will receive cash from a maturing investment but don't know where to put it without being pushed over the threshold - isa used already.
Most Shares will pay dividends, bank interest will also be treated as income - so thinking those options are limited

One thought is buying bonds that mature in 24 months..would this work in terms of defering interest payment until nursery has ended?

I understand all these are first world problems.
Welcome the collective knowledge on feasibility of bond option or other options...

[ChrisH72]

I think most fixed rate bonds pay interest annually? Some longer term ones even pay monthly which is no good to you.

Do you hold any Premium Bonds?

If not, you can buy 50k and any prizes are free of tax.

[Steve H]

Wouldn’t most stock portfolio investments be taxed as CGT which would have a different set of allowances applied?

There will be dividends in there as part of any gain but I don’t think they are treated separately as income??

[PM3]

Steve H said:

Wouldn t most stock portfolio investments be taxed as CGT which would have a different set of allowances applied?

There will be dividends in there as part of any gain but I don t think they are treated separately as income??

At risk of derailment of thread into a dividend discussion..... Steve I sincerely believe that is NOT the case . Dividends whether paid out or not are income and part of the income sub total on MY tax returns
I wait to be corrected !

[PM3]

OP . Presuming you have exhausted all the usual vehicles and if your calculations show you are oing to tip over the cliff a small amount ( ie smaller than the worth of the benefit ) a charity donation might be enough to pull you back from the edge ?

[Steve H]

PM3 said:

At risk of derailment of thread into a dividend discussion..... Steve I sincerely believe that is NOT the case . Dividends whether paid out or not are income and part of the income sub total on MY tax returns
I wait to be corrected !

I’m also very willing to be proven wrong on this! It would make sense but I wasn’t aware of it.

If I hold a tracker or package of shares in a GIA should I be looking for an annual statement of dividends that is produced separately from any growth that would be subject to CGT if crystalised?

[The Leaper]

PM3 said:

Steve H said:

Wouldn t most stock portfolio investments be taxed as CGT which would have a different set of allowances applied?

There will be dividends in there as part of any gain but I don t think they are treated separately as income??

At risk of derailment of thread into a dividend discussion..... Steve I sincerely believe that is NOT the case . Dividends whether paid out or not are income and part of the income sub total on MY tax returns
I wait to be corrected !

Any gain between buying and selling is a capital gain and subject to CGT on sale.

Any dividends is income and subject to income tax.

Am I wrong?

R.

[Greenmantle]

The Leaper said:

PM3 said:

Steve H said:

Wouldn t most stock portfolio investments be taxed as CGT which would have a different set of allowances applied?

There will be dividends in there as part of any gain but I don t think they are treated separately as income??

At risk of derailment of thread into a dividend discussion..... Steve I sincerely believe that is NOT the case . Dividends whether paid out or not are income and part of the income sub total on MY tax returns
I wait to be corrected !

Any gain between buying and selling is a capital gain and subject to CGT on sale.

Any dividends is income and subject to income tax.

Am I wrong?

R.

except low coupon UK gilts
set-up a dealing account and buy short dated low coupon gilts
rotate to new gilts every 18 months or so

[Steve H]

Save multi-quoting, I have just looked at a GIA I have and you are absolutely right, there is a separate section where dividend information is available .

Almost all my stuff is in SIPP/ISAs so I hadn t realised that was even there

The greater growth is still in CGT but every day is a school day and I see now why the OP needs to avoid it.

[alscar]

Divs whether paid out or added back to the account count as income and should be declared and taxed as such.
From our accounts that generate such we receive a statement for each year for SA.
We also receive a CGT report obviously.
IT’s aren’t so helpful on the latter and any sales necessitate lots of paper for my accountant to go through.
Divs they produce statements for.

[SunsetZed]

PM3 said:

OP . Presuming you have exhausted all the usual vehicles and if your calculations show you are oing to tip over the cliff a small amount ( ie smaller than the worth of the benefit ) a charity donation might be enough to pull you back from the edge ?

This is the best option IMO.

[Francis2020]

Looks like a charity donation or an expensive cycle to work to keep me below.

Thanks also for premium bonds idea. A combination of all 3 should be the right thing.

Madness the games you need to play. Thanks all

[Steve H]

It is mad that going a small amount over a threshold can cost you a large amount in lost childcare etc.


But going back to equities, would it be possible to put this money into shares which prioritise growth over dividends (typically US companies), then donate the amount of any dividends to keep below the income threshold whilst still benefiting from the cap gains? Obviously there would be CGT to pay but at a lower rate than your income tax and without affecting anything else.


Hopefully I won’t make two foolish suggestions in one day .

[Francis2020]

Steve H said:

It is mad that going a small amount over a threshold can cost you a large amount in lost childcare etc.


But going back to equities, would it be possible to put this money into shares which prioritise growth over dividends (typically US companies), then donate the amount of any dividends to keep below the income threshold whilst still benefiting from the cap gains? Obviously there would be CGT to pay but at a lower rate than your income tax and without affecting anything else.


Hopefully I won t make two foolish suggestions in one day .

Sounds sensible the tech shares typically are low yield just concerned on exposure

[David_M]

Steve H said:

It is mad that going a small amount over a threshold can cost you a large amount in lost childcare etc.

I know that this is not really the point of the thread, but the political contortions that have led to this are ridiculous and objectively are not defensible.

They have happened almost entirely because politicians make stupid statements like "we will not increase income tax" but then realise that more tax revenues are needed.

I would whole-heartedly support reform that corrected this.

To be clear, I support progressive taxation but that should be in a sensible series of steps or rising line from left to right - not this nonsense: