68% Tax Relief and Child Benefit Back.
Fight Back and Reclaim your Child Benefit.
It has been well documented that child benefit has reduced if you have a higher rate tax paying parent and stops completely if one parent earns £50,000 pa or more. One million families have lost their child benefit.
So what have we lost? For families with two children this means a loss of £1,752 pa. For a family with three children, this means a loss of £2,449 pa.
What have we missed? £50,000 is not just your gross income. It is your adjusted net income.
- Adjusted net income is Gross Income less personal (i.e. your own) pension contributions
Basic Income Tax Payable on £50,000 Salary, 3 Children
- Nil Tax on Personal Allowance £8,105 = £0 Tax
- 20% Tax on £ £34,370 = £6,874 Tax
- 40% Tax on £7,525 = £3,010 Tax
- Total Tax Paid = £9,884 + Lost Child Benefit for £2,449
- Loss £12,333
Getting Net Your Net Adjusted Taxable Income to below £50,000
Suggestion 1 - Talk to your employer about Salary Sacrifice Income or Sacrifice Bonus and for them to pay this into a pension scheme for you.
Suggestion 2 - If you run your own business, reduce salary, reduce dividends and pay into a pension scheme to reduce your net adjusted taxable income
The numbers if you have 3 children
- Salary/Bonus/Dividend Sacrifice: £10,000 + Employers National Insurance Saving
- New Net Income £40,000 – you now qualify for full child benefit £2,449
- Effective Pension Contribution by Employer £10,000 + ER’s NIC saving 13.8% £1,380
- Total Pension Contribution £11,380
- Your Tax Liability on £40,000: £8,105 – Nil Tax, £31,895 X 20% = £8,104 Tax (compared to tax before £9,884)
- Total Personal National Insurance Saved (as you earn less) 12% = £1,200
Total Additional Benefit to you/your family:
- Pension Fund £11,380
- Personal National Insurance Saved £1,200
- Child Benefit £2,449
- Tax Saved £1,780
- Total Benefit/Savings £16,809
An effective child benefit/pension tax relief rate of 68.09% on a £10,000 pension contribution
A slightly lower effective rate if you are a business owner and pay dividends but still around 55%.
Contact us for help with pensions, tax relief and reclaiming your child benefit back.