From 7 January if one parent in a household earns more than £50,000 he or she will have to pay the new child benefit tax , regardless of which parent is claiming the child benefit, and irrespective of the income earned by the second parent. For those earning over £60,000 the amount of the charge is the same as the Child Benefit received.
How to keep your Child Benefit!
Income used to calculate the tax is defined as net adjusted income, to arrive at the net adjusted figure you deduct any gross pension contributions made.
Andrew has a taxable income of £55,000 and his wife Beth £20,000, they have two children which gives Beth Child Benefit of £1,752.40.
Since Andrew’s income is £5,000 above the limit, he will face a tax charge of 50% of £1,752.40 (£876.20). However, if Andrew makes a net pension contribution of £4,000 into his personal pension plan this will be grossed up to £5,000. His net adjusted pay will be reduced to £50,000 and the tax charge will not apply!
By paying £4,000 into his pension, Andrew has saved £876.20 and through his tax return can claim an additional £1,000 tax relief as a higher rate tax payer. So his pension contribution has cost him £4,000 – £1,000 – £876 =£2,124 and he has saved £5,000 towards his retirement!
Other things to consider are;
- Buying extra holiday through salary sacrifice
- Buying childcare vouchers
- Donating money to charity through gift aid
- Equalising income between spouses
- Crystalising income tax losses
For further information or to review your pension or retirement planning, contact Antony Keen on 01254 679138 or email firstname.lastname@example.org
For general advice on taxation issues, contact Jane Parry on 01254 679131 or email email@example.com