Child Benefit Tax Charge

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%

15. Difference in tax paid £7,701.20