Posted by Flora Maudsley-Barton | October 31, 2012
Zen and the Art of Child Benefit Manipulation
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?