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, for first child
£ for each of his other two children
£2, 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, for first child
£ for each of his other two children
£2, 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, 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, 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, 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. Before pension
contribution
After pension
Gross salary
£63,000
Less gross pension
Contributions
n/a
£13,000
Personal Allowance
£11,000
Basic rate 20%
£ 6,400
Higher 40%
£ 8,000
£ 2,800
Child benefit tax charge
£2,501.20
Total tax paid
£16,901.20
£9,200

15. Before pension
contribution
After pension
Gross salary
£63,000
Less gross pension
Contributions
n/a
£13,000
Personal Allowance
£11,000
Basic rate 20%
£ 6,400
Higher 40%
£ 8,000
£ 2,800
Child benefit tax charge
£2,501.20
Total tax paid
£16,901.20
£9,200
Difference in tax paid £7,701.20