P60's, Pension contributions and child benefit thresholds

Practical Issues
bucklb
Posts: 11
Joined: January 8th, 2017, 11:08 pm

P60's, Pension contributions and child benefit thresholds

Postby bucklb » January 10th, 2017, 10:21 pm

Hi

A "Voluntary" Redundancy package this year has thrust me in to not only the 40% tax category for the year but even in to the position of potentially losing all our child benefit payment for this year. First world problems I realise.

Up until now I've used AVC contributions to (mostly) keep just within the 20% threshold via salary sacrifice, so my p60 has always shown a gross that is well below any figure that might threaten child benefits.

This year I plan to put a significant lump sum in to a SIPP imminently, such that my "taxable" figure is again just within the 20% tax threshold and therefore well below the child benefit threshold. In future years I also plan to use SIPP contributions (which won't be direct from payroll) to keep my 40% tax exposure minimised. Unfortunately salary sacrifice is no longer an option and the AVC's that my new employer will allow me to pay in to from payroll are less than inspiring, so payment via payroll won't happen.

I understand that paying in to a SIPP directly from my bank account (rather than via payroll) will engender the annual joy of tax forms. I'm hoping someone can reassure me that a P60 showing a rather hefty income, even if a significant amount ended up in a SIPP, won't preclude me from possible child benefit access. Is that the case?

Thanks
Bob

DetailMerchant
Posts: 5
Joined: November 4th, 2016, 7:45 pm

Re: P60's, Pension contributions and child benefit thresholds

Postby DetailMerchant » January 16th, 2017, 12:58 pm

Hi bucklb,

Yes, paying into your pension can reduce your pay for High Income Child Benefit Tax Charge purposes, so that you are below the £50k threshold.
Payments you make into your pension reduce your taxable pay, For the Child Benefit Tax Charge, the relevant figure is your '‘adjusted net income’ - as per this page https://www.gov.uk/child-benefit-tax-charge/overview
If you go to the calculator from that page, the box near the bottom is "https://www.gov.uk/child-benefit-tax-charge/overview", and this figure (along with all the others) is used to calculate ‘adjusted net income’, and if it's less than £50k then you don't have to pay any CB back. If it's £60k or more you have to pay it all back, if it's between £50k and £60k then you pay 1% of it back per £100 over £50k.
For the last couple of years I've paid enough into my pension, just before the end of the tax year, to reduce my ‘adjusted net income’ to £50,099, or just under, to avoid any High Income Child Benefit Tax Charge.
As I've done tax returns for quite a few years, I've got a spreadsheet which helps me work out how much I need to pay.
In my situation (2 children), my marginal tax rate is effectively 58% (40% HR income tax + 18% CB clawback). So for each £100 of my income above £50k I can have £42 in my pocket, or £100 in my pension. I don't think I'll be paying HR income tax in retirement, so the £100 in my pension should be worth £80 in my pocket when I get it, so for me it seems silly not to put it into my pension.
But other factors might influence other people differently.
Regards, Detail Merchant

bucklb
Posts: 11
Joined: January 8th, 2017, 11:08 pm

Re: P60's, Pension contributions and child benefit thresholds

Postby bucklb » January 16th, 2017, 8:52 pm

Thanks DM. That's how I thought it worked, but it's very reassuring to get a direct answer to my question. When it comes to the tax man I start to get nervous for some reason :oops:

Cheers
Bob


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