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I earn 52k but receive child benefit. Should I overpay my pension to so I do not lose or get overpaid child benefit? If so, by how much?

05 April 2022

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Question by Leona

I earn 52k but receive child benefit. Should I overpay my pension to so I do not lose or get overpaid child benefit? If so, by how much?


Answered by Laura Ripley

Hi Leona

This is good thinking and the simple answer is yes, you should if affordable to do so.

The High Income Child Benefit applies if you (or a partner, if applicable) have an individual 'adjusted net income' of over £50,000.

The more you go over £50,000, the higher the charge until the point is reached where the charge is exactly offsetting the amount of benefit you are receiving.

But what is 'adjusted net income'? The word 'net' is the confusing bit because it does not mean net of tax. First add up your taxable income from things like your:

- salary before tax (with pension contributions under net pay arrangements deducted),
- bonuses,
- taxable benefits provided by your employer (for example medical insurance,
- a company car or anything else included on your P11D),
- taxable savings and dividends,
- income from property before tax (for example taxable rental income)

Then take off any allowable deductions for pensions contributions deducted from your pay (do not include contributions deducted before tax), pension contributions not paid from your salary (the amount you actually paid, not the grossed-up amount), cycle scheme and gift aid donations.

This is your adjusted net income - it must be £50,000 or below for the High Income Child Benefit not to apply.

There is a handy little calculator on the gov.uk site below which you can use to play around with the figures to work out how much extra you should pay into your pension.

https://www.gov.uk/child-benefit-tax-calculator

Final point to note is that if the charge applies (because your adjusted net income is more than £50,000), you will still receive the full child benefit but you would simply need to pay part/all of it back through the tax charge at the end of the tax year.

I hope this helps.

Best wishes

Laura

Answered by

Laura Ripley

Chartered Financial Planner

I am a Chartered Financial Planner and Operations Director of Handford Aitkenhead & Walker, a practice that has been in business for over 40 years. I also hold the Investment Management Certificate and co-manage the investment solutions for our clients.