Child Allowance & £50k Pa

[Red Leader]

Hi,
Pete has 2 kids and earns £55K Pa. If he puts £5001 in his personal pension before 05.04.19 will he have to pay any of the child benefit back? If he increases this pension contribution to £8651 I assume he will also be below 40% tax?

RL

[JulianPH]

Red Leader said:

Hi,
Pete has 2 kids and earns £55K Pa. If he puts £5001 in his personal pension before 05.04.19 will he have to pay any of the child benefit back? If he increases this pension contribution to £8651 I assume he will also be below 40% tax?

RL

I love the simple ones! No, Pete won't.

By way of explanation, child benefit is based upon adjusted net income, the pension contribution adjusts the net income to ensure it does not impact on the child benefit allowance.

Cheers

[Red Leader]

JulianPH said:

Red Leader said:

Hi,
Pete has 2 kids and earns £55K Pa. If he puts £5001 in his personal pension before 05.04.19 will he have to pay any of the child benefit back? If he increases this pension contribution to £8651 I assume he will also be below 40% tax?

RL

I love the simple ones! No, Pete won't.

By way of explanation, child benefit is based upon adjusted net income, the pension contribution adjusts the net income to ensure it does not impact on the child benefit allowance.

Cheers

Thanks, I had this chat with a friend who is an accountant and he said that despite paying in the £5001 the Child Allowance would still need to be paid back or at least a % of it

[theboss]

If he's making the pension contribution personally then he only needs to stick £4k in. The pension operator will add £1k which is provided by HMRC in respect of the basic rate of tax paid on that income. He should then complete a self-assessment and will get a remaining £1k higher-rate tax refunded.

Therefore the £5k pension contribution will only cost him £3k from his taxed pocket, plus he'll keep his child benefit.

Welcome to 65%+ marginal tax rates for middle earners.

[quinny100]

Pete will need to ring HMRC and inform them of his pension contributions if they are not deducted before tax at source.

They will issue a revised P800 tax calculation and the appropriate tax rebate.

[mike9009]

It also depends on what Pete's wife earns. (ie greater than £50k too?)

[Squiddly Diddly]

theboss said:

If he's making the pension contribution personally then he only needs to stick £4k in. The pension operator will add £1k which is provided by HMRC in respect of the basic rate of tax paid on that income. He should then complete a self-assessment and will get a remaining £1k higher-rate tax refunded.

Therefore the £5k pension contribution will only cost him £3k from his taxed pocket, plus he'll keep his child benefit.

Welcome to 65%+ marginal tax rates for middle earners.

Does it really equate to 65%+?

[Derek Chevalier]

Squiddly Diddly said:

theboss said:

If he's making the pension contribution personally then he only needs to stick £4k in. The pension operator will add £1k which is provided by HMRC in respect of the basic rate of tax paid on that income. He should then complete a self-assessment and will get a remaining £1k higher-rate tax refunded.

Therefore the £5k pension contribution will only cost him £3k from his taxed pocket, plus he'll keep his child benefit.

Welcome to 65%+ marginal tax rates for middle earners.

Does it really equate to 65%+?

Depends on the number of children.

[Squiddly Diddly]

Derek Chevalier said:

Depends on the number of children.

Seems utterly mad that the tax system can effectively be, 0%, 20%, 65%, 40%, 60% 40% 45%.

And this ignores the 72% tax where tax credits are reduced.

[emicen]

Squiddly Diddly said:

Derek Chevalier said:

Depends on the number of children.

Seems utterly mad that the tax system can effectively be, 0%, 20%, 65%, 40%, 60% 40% 45%.

And this ignores the 72% tax where tax credits are reduced.

For those north of the border, the 20% bracket gets expanded to subsets of 19%, 20% & 21% for a few more layers of nonsense.

[pete_esp]

And the 40% bracket kicks in at a lower rate than the rest of the UK too

[Derek Chevalier]

Squiddly Diddly said:

Derek Chevalier said:

Depends on the number of children.

Seems utterly mad that the tax system can effectively be, 0%, 20%, 65%, 40%, 60% 40% 45%.

And this ignores the 72% tax where tax credits are reduced.

Agreed. No need for all this complexity IMO

[JapanRed]

theboss said:

If he's making the pension contribution personally then he only needs to stick £4k in. The pension operator will add £1k which is provided by HMRC in respect of the basic rate of tax paid on that income. He should then complete a self-assessment and will get a remaining £1k higher-rate tax refunded.

Therefore the £5k pension contribution will only cost him £3k from his taxed pocket, plus he'll keep his child benefit.

Welcome to 65%+ marginal tax rates for middle earners.

Excuse my ignorance but how would someone end up paying 65%, or even 50%+?

[Derek Chevalier]

JapanRed said:

theboss said:

If he's making the pension contribution personally then he only needs to stick £4k in. The pension operator will add £1k which is provided by HMRC in respect of the basic rate of tax paid on that income. He should then complete a self-assessment and will get a remaining £1k higher-rate tax refunded.

Therefore the £5k pension contribution will only cost him £3k from his taxed pocket, plus he'll keep his child benefit.

Welcome to 65%+ marginal tax rates for middle earners.

Excuse my ignorance but how would someone end up paying 65%, or even 50%+?

In addition to 40% income tax they will have to pay some of their child benefit back if their adjusted earnings are over £50,099

[Croutons]

Returning a benefit someone has received but doesn't qualify for isn't tax though is it?

[Derek Chevalier]

Croutons said:

Returning a benefit someone has received but doesn't qualify for isn't tax though is it?

It's tax charge

https://www.gov.uk/child-benefit-tax-charge

[theboss]

Croutons said:

Returning a benefit someone has received but doesn't qualify for isn't tax though is it?

No but it by linking it to taxable income and withdrawing it at £0.n per pound above an arbitrary income threshold it acts like an additional marginal rate of tax, especially if it can be avoided by taking advantage of tax relief on pension contributions.

If you earned £60k and had 3 kids which would result in child benefit of approx £2.5k per annum, would you not agree that it would be effective tax planning to put £10k in your pension at a net cost of only £3.5k?

[Croutons]

Derek Chevalier said:

It's tax charge

https://www.gov.uk/child-benefit-tax-charge

You learn something new here every day!

[lythaby]

Also factor that Mrs A could earn £50k ANI PA, and Mr A could earn £50k ANI PA, so joint income of £100k PA, and can still claim Child Allowance.
But, Mrs L only earning £12,500 ANI PA, and Mr L earns £60k ANI PA, so joint income of £62,500PA, and can't claim Child Allowance.
The middle ground is that you pay tax on the allowance via self cert.

Fun

[jonwm]

By earning just over 50k with a company car is a killer. Wife does a part time job and have to pay tax back every year.

I literally take home the equivalent of a £30K a year job. Drives me mad.