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Child Benefit Tax Charge

Learn how making a pension contribution can help reduce your adjusted net income and retain entitlement to child benefit—even with taxes and charges factored in.

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Child Benefit Tax Charge

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  1. Child Benefit Tax Charge

  2. A pension contribution can reduce your earnings for the purpose of regaining entitlement to means tested benefits

  3. A pension contribution can reduce your earnings for the purpose of regaining entitlement to means tested benefits • Child benefit is a means tested benefit, if your adjusted net income is over £50,000, 1% of your child benefit will be lost for each £100 over the £50,000

  4. A pension contribution can reduce your earnings for the purpose of regaining entitlement to means tested benefits • Child benefit is a means tested benefit, if your adjusted net income is over £50,000, 1% of your child benefit will be lost for each £100 over the £50,000 By making a pension contribution you can reduce your adjusted net income and regain part or all of your entitlement to child benefit.

  5. John is married with three children He earns £58,000 He is due to get a bonus of £5,000 His wife Gemma looks after the children and does not currently have any employment income.

  6. As John’s income will be over £60,000, he will face a tax charge that will wipe out the child benefit received.

  7. As John’s income will be over £60,000, he will face a tax charge that will wipe out the child benefit received. Child benefit received: £1,076.40 for first child £ 712.40 for each of his other two children £2,501.20 annual total child benefit

  8. As John’s income will be over £60,000, he will face a tax charge that will wipe out the child benefit received. Child benefit received: £1,076.40 for first child £ 712.40 for each of his other two children £2,501.20 annual total child benefit John’s income of £63,000 is £13,000 over £50,000, so he loses 1% of child benefit for every £100 over £50,000 £13,000/£100 = 130% lost i.e. John has a tax charge equal to the £2,501.20 that he has received in child benefit

  9. If John makes a pension contribution of £13,000, it only costs him £10,400 (£2,600 is paid by HMRC as tax relief)

  10. If John makes a pension contribution of £13,000, it only costs him £10,400 (£2,600 is paid by HMRC as tax relief) This will bring his adjusted net income down to £50,000

  11. If John makes a pension contribution of £13,000, it only costs him £10,400 (£2,600 is paid by HMRC as tax relief) This will bring his adjusted net income down to £50,000 He will no longer suffer the child benefit tax charge

  12. If John makes a pension contribution of £13,000, it only costs him £10,400 (£2,600 is paid by HMRC as tax relief) This will bring his adjusted net income down to £50,000 He will no longer suffer the child benefit tax charge The result is a saving of £2,501.20 in child benefit and £5,200 in income tax

  13. If John makes a pension contribution of £13,000, it only costs him £10,400 (£2,600 is paid by HMRC as tax relief) This will bring his adjusted net income down to £50,000 He will no longer suffer the child benefit tax charge The result is a saving of £2,501.20 in child benefit and £5,200 in income tax The difference in tax paid is £7,701.20, which equates to an effective rate of 59%

  14. Difference in tax paid £7,701.20

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