Salary sacrifice into pension to keep child benefit.

[Huntsman]

I salary sacrifice some of my income into my pension so that my gross salary is just under £50k.

I do this because I was previously advised this is tax advantageous into the pension scheme (ie the gross amount goes into the scheme) and because it means we get to keep the £80 a month child benefit.

I changed jobs mid year, but have totted up my gross salary and its about £300 over the £50k, I can sort that my making a increased pension payment in March.

What happens if I get a bonus and that amount tips my gross over the £50k? I could dump all the bonus into the pension? That would prevent me from losing the child benefit?

[rsbmw]

You lose the benefit on a sliding scale between £50k and £60k, so it would need to be a £10k bonus to lose all of it.

No reason you can't get your employer to pay any bonus straight into pension though.

[otherman]

Yes, whole bonus can go into pension. That's what I do.

[Huntsman]

Thanks chaps.

I'll do that, don't really need it, I'd just spend it on stupid st. Like another 7ltr car or some such.

[randlemarcus]

Not sure that it's wise to suggest you don't need the cash when you are in receipt of Government Benefits

[F30]

It's a soft limit, so for every £100 you earn over £50k you have to repay 1% of the child benefit until you reach £60k (whereby you'll have to repay 100% of the child benefit).

So don't worry about squeezing every penny out to get under £50k - You won't lose it ! If you go over by a few hundred you'll only lose a few % of the CB.

Any amount repayable will be repayable on your tax return so keep back whatever you'll think you need to repay.

If the numbers work against you and you earn over £60k (i.e. you have to repay all of the benefit), they still count towards NI contributions so worth the lowest earner to take it even if it has to be paid back.

[rotarymazda]

Huntsman said:

I salary sacrifice some of my income into my pension so that my gross salary is just under £50k.

What happens if I get a bonus and that amount tips my gross over the £50k? I could dump all the bonus into the pension? That would prevent me from losing the child benefit?

The most efficient way is to use salary sacrifice in advance to be x% salary but 100% of bonuses with the employer also giving you their NI savings. If you do the pension top-ups after receiving the bonus, you won't get the NI savings. Salary sacrifice is not intended to be frequently changed so best to setup once as above.

Without this your effective marginal rate is 40% (income tax), +2% (employee NI), +12% (employer NI), +17% (child benefit withdrawal).

So anything over £50K is taxed at a marginal rate of 65-70%.

For me, I'm happy to wait until I can withdraw at an average rate of 15% instead (20% income tax, no NI, 25% tax-free lump sum at 0%).

[Brads67]

So whilst making more than 50k a year, you hide some of your wages so that the taxpayer can hand you 80 quid a month in benefits.


Classy.

[Huntsman]

Brads67 said:

So whilst making more than 50k a year, you hide some of your wages so that the taxpayer can hand you 80 quid a month in benefits.


Classy.

If you like, yes.

There's a system of clearly defined rules, what I am doing is entirely within that set of rules. Choosing to take less of the money I earn in my pocket now and setting it aside for the future and taking advantage of the government wanting me to do that by making it more tax advantageous to do so. Later in life, I'll be better placed to looked after myself financially and less likely to need support from the state.

[williaa68]

Or put it another way, while earning £50k a year he takes prudent steps to plan for his old age to avoid being a burden on the taxpayer in later life..?

[Trophy Husband]

Similar to the Winter Fuel Allowance in my mind. My parents are minted compared to most and they give their WFA to a local support charity for the needy elderly. My lovely wife and I are good earners. We give our child benefit to the NSPCC. I suppose we're all different aren't we? The thought of basing my tax/pension planning etc on £20 free per week or not is not worth the thought IMHO, especially if you are earning £50k plus. Taxpayers money better spent elsewhere on those in need of which there are many.

Just to be clear, CB is a burden on the taxpayer now. Thus factoring it into a retirement scenario, less of a burden etc, is just a deferral and a red herring.

[Brads67]

Aye

What he said. ^

[mike9009]

I do the same. This years pay increment is going straight into my pension on a monthly basis. It is perfectly legal and means I get greater tax relief and get to keep most of the child benefits. Only issue I have is I need to do a tax return as I don't put enough in my pension to get below £50k (my wife does not work!)

This is where I find the current system a little unjust, in that we have friends who both earn mid-40k (so just over £90k in total p.a.) and they get to keep all their child benefits. Not sure how it affects single parents earning over £50k?

Mike

[tighnamara]

Trophy Husband said:

Similar to the Winter Fuel Allowance in my mind. My parents are minted compared to most and they give their WFA to a local support charity for the needy elderly. My lovely wife and I are good earners. We give our child benefit to the NSPCC. I suppose we're all different aren't we? The thought of basing my tax/pension planning etc on £20 free per week or not is not worth the thought IMHO, especially if you are earning £50k plus. Taxpayers money better spent elsewhere on those in need of which there are many.

Just to be clear, CB is a burden on the taxpayer now. Thus factoring it into a retirement scenario, less of a burden etc, is just a deferral and a red herring.

As a construction company director I presume you ensure you manage your taxes very wisely and don’t use the system to help your business flourish.

Give the man a break, he was asking what was a legitimate question where he can manage his finances, nothing illegal or out the ordinary.

You don’t know what he or his family give to charity or do in the community.

Why the need to tell a forum that you put money to NSPCC, plenty of people give to charity but don’t need to advertise it to make them feel good.

[bmwmike]

F30 said:

...
If the numbers work against you and you earn over £60k (i.e. you have to repay all of the benefit), they still count towards NI contributions so worth the lowest earner to take it even if it has to be paid back.

Just to clarify this it's possible not to claim but still have the NI credits. My wife is doing that. She doesn't work and I am not eligible to claim the CB, so we don't get it but she still gets the NI credits.

Edit to add nothing wrong with claiming CB I'm just pointing out the HMRC can be quite flexible if needed.

[oyster]

Brads67 said:

So whilst making more than 50k a year, you hide some of your wages so that the taxpayer can hand you 80 quid a month in benefits.


Classy.

Or put it another way.

"Whilst working hard to contribute to the economy and bring up further tax contributors, a fully legal and recognised tax mitigation measure is used".
Not quite so Mail-esque is it?

[oyster]

Trophy Husband said:

Similar to the Winter Fuel Allowance in my mind. My parents are minted compared to most and they give their WFA to a local support charity for the needy elderly. My lovely wife and I are good earners. We give our child benefit to the NSPCC. I suppose we're all different aren't we? The thought of basing my tax/pension planning etc on £20 free per week or not is not worth the thought IMHO, especially if you are earning £50k plus. Taxpayers money better spent elsewhere on those in need of which there are many.

Just to be clear, CB is a burden on the taxpayer now. Thus factoring it into a retirement scenario, less of a burden etc, is just a deferral and a red herring.

Get over yourself.

Minted parents, and you're good earners. How dare you suggest what financial situation other people have that allows YOU to suggest where their entitled tax offset should be spent.

[TwigtheWonderkid]

oyster said:

Brads67 said:

So whilst making more than 50k a year, you hide some of your wages so that the taxpayer can hand you 80 quid a month in benefits.


Classy.

Or put it another way.

"Whilst working hard to contribute to the economy and bring up further tax contributors, a fully legal and recognised tax mitigation measure is used".
Not quite so Mail-esque is it?

Exactly, and seeing as the Tories promised they would not touch child benefit, and then broke that promise, I see nothing immoral in arranging your affairs in order to get something that was promised to you.

[sidicks]

Brads67 said:

So whilst making more than 50k a year, you hide some of your wages so that the taxpayer can hand you 80 quid a month in benefits.
Classy.

What is your contribution to the Exchequer?

[Brads67]

My full whack in income tax.
PAYE whilst I was earning 100k a year is painful to say the least but am paying far less these days. But I`d be embarrassed to hide part of my wage to get child benefit.

Do I contribute enough to be allowed to comment ?