Ahead of the tax year end, which falls on April 5, Britons are being reminded they may need to take action for a variety of reasons – be it to use up their annual allowances or to pay money they owe to HMRC. Another warning which has been issued relates to Child Benefit payments.
“It does not matter if the child living with you is not your own child.”
If a person’s income is over the threshold, they can either choose to get the Child Benefits and pay any tax charge they may face at the end of the tax year, or opt against getting Child Benefit payments.
Ahead of the tax year end, Kevin Sefton from untied, the UK’s personal tax app, is reminding households they may need to take action.
Addressing people who have income over £50,000 and received Child Benefit, he said: “If your total income has exceeded £50,000 for this tax year and you or your partner received Child Benefit, you’ll be liable for the ‘High-Income Child Benefit Charge’.
“This is because the benefit is clawed back if your income goes over the £50,000 threshold.
“However, you can potentially avoid or reduce this charge by making certain additional payments to a pension before the tax year ends, or by making donations to charity through Gift Aid.
“HMRC allows you to deduct the gross amount of these payments from your income before applying the charge.
So, if you contribute enough to get your income below £50,000, you’ll completely avoid this charge, meaning you retain the full value of any Child Benefit received.
“You’ll also get the added bonus of receiving tax relief on your pension contributions.”
The deadline is something which Nathan Long, senior analyst at Hargreaves Lansdown, has also discussed.
“In the last few days of the tax year, tactical use of pension contributions could leave you much better off,” he said.
“However, if you don’t think it through, last-minute mistakes could end up being incredibly costly.”
On the topic of the HICBC, he said: “The government adds 20 percent tax relief to any money you pay into a pension.
“If you’re a higher-rate or additional-rate taxpayer, you can claim back a further 20 percent or 25 percent respectively, via your tax return.
“Even non-earners can contribute up to £3,600 (so you pay in £2,880, and the government adds £720).
“At tax thresholds, contributions can be particularly rewarding.
“If, for example, you earn £58,000 (with no other taxable income) and you have one child under 18, you’ll repay £876 under the High Income Child Benefit Charge.
“If you pay £6,400 into a personal pension, 20 percent pension tax relief will bring it to £8,000, and you can claim another £1,600 tax relief through self-assessment, so your contribution effectively costs £4,800.
“You will also bring your income below the tax charge, saving you £876.
“It means an £8,000 boost to your pension costs £3,924 after the tax benefits.”