Zen and the Art of Child Benefit Manipulation

child benifit change

If your family income is over 50K, then you stand to lose your Child Benefit starting next January but there are a few tricks that could allow you to regain the benefit and maybe do some good along the way.

Any parent with income of over £50,000 will see its entitlement to child benefit reduce to the point of complete loss once the income exceeds £60,000. Your income is defined, for this purpose, as income after pension contributions and charitable gifts. So if your income is not very far over the limit, and you were considering making a charitable contribution, then it might be a good idea to bring that intention forward a bit because it may get back the child benefit that you stand to lose.

The maximum you can pay into a pension is a fairly long calculation. I won’t try to recreate it here, but in broad terms the absolute maximum is £50,000 per year.

If you earn £60,000, then making a £10,001 pension contribution just to get your child benefit back fails any common sense test.

It did get me thinking, though. What about a person with earnings of £51,000? In that case a net gift or pension contribution of £600 might seem an attractive exchange to keep your full child benefit, £1,245 for a family with two children?

So the big question is; A pension contribution or a gift to charity?

Pensions are normally unattractive for tax planning purposes alone, despite what HMRC may fear, because the money is locked up for the long term, in most circumstances, people can’t get at it until they reach age 55.

However, if my dalliance with Buddhism has anything to teach us, the gift to charity won’t have a benefit until the next life. Certainly, I know a lot of hard working charities that could do an awful lot of good with £1,000.

We will be talking to our clients about this to help them decide what to do. The conversation will be useful, even if ‘no action’ is the right action.

Add a comment to let me know which way you would go?

Here's a little more information about our team:

Q: Qualifications Include

A: My degree in modern languages included a module on economics and personal finance, and that's how I got into financial planning.

Since then, I've become dual qualified as both a Certified Financial Planner and a Chartered Financial Planner, including the specialist qualifications in Tax & Trusts (G10) and Pensions (AF3/G60).

The full list is:

AF3 - Pensions (CII) (I did that to totally update my pension knowledge, as I had done G60 in 1994.)
K10 - Retirement Options (CII)
K20 - Pensions Investment Options (CII)
G20 - Personal Investment Planning (CII)
Chartered Financial Planner (CII)
ER1 - Equity Release (CII)
HR1 - Home Reversion Plans (CII)
G10 - Taxation and Trusts (CII)
CFP - Certified Financial Planner Licence (IFP)
H15 - Supervision and Sales (CII) 

In November 2016 I added the STEP (Society of Trust and Estate Practicioners) Certificate for Financial Services.

Q: Do your clients have anything in common with each other?

A: They are all lovely and there are a few similarities in their aims that I've noticed. 

Many of my clients want to do more than just meet their own needs. They also see themselves as custodians of their money for the next generation or for other beneficiaries. 

In other cases, their aim is to manage their wealth efficiently during their lifetime, with the aim of spending it all… but minimising tax on the way there.

Q: What type of work do you enjoy most?

A: I do get a real sense of satisfaction from the work with those clients who engage me to manage the needs of two generations of the same time. That can be 'just' a long-term and balanced investment strategy or it can be trust planning and estate planning to avoid paying too much Inheritance Tax.

Q: Where would you be right now if you weren't at work?

A: In the Lakes

Q: In the film of your life, who would play you?

A: In my head, it's Uma Thurman, but I expect they would approach 'Nursey' from Blackadder II.

Q: Curry or Hot Pot?

A: Agh, too difficult. Curry.

Q: Sherbert or Chocolate?

A: Chocolate

Q: Lawn or Flowers?

A: Lawn

Q: What are you most likely to do whilst being 'on hold'?

A: Infuriate my colleagues by opening conversations then cutting off their reply when my call is answered.