Tuesday, 5 October 2010

Pay more into your pension to save your child benefit

Here's a fantastic tip from Simonne if you think you're going to be hit by Cameron's cutting child benefits:

The government's just announced that parents who are higher rate tax payers (currently those earning more than £43,875 a year) will have their child benefit axed from 2013. The benefit will be stopped even if only one parent falls into that tax bracket. This will affect families with only one parent working the most. Hmm... I can see this affecting lots of women.

But ... wait for it, there's some good news.

These higher rate tax bands are based on the amount of income you pay tax on and there are ways to reduce your taxable income.  One brilliant way is to make a contribution into a private, or company, pension scheme. So, let's say you earn £46,000, and you pay £300 a month (or £3,600 a year) into a pension plan before tax, your taxable income would be treated as £42,400 (£46,000 less £3,600) which is below the higher rate tax limit. So, hey presto you still qualify for child benefit. The other great thing is that you'll be putting away money as a gift for your future self (the way Sheconomists think of saving for retirement!). Even better, the pension company would only actually collect £240 a month (£2,880 a year) because you automatically receive 20% tax relief on any pension contributions you make. 

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