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3 min read 6 Apr 23
How inheritance tax planning can also help lower tax on a family basis and help with retirement planning.
There is a 1% tax charge on the child benefit received for each £100 of Adjusted Net Income over £50,000. At £60,000 plus, the tax charge is 100%, in effect removing all child benefit, It’s also worth noting that the HICBC starts before the adjusted net income of the highest earner moves into higher rate tax
The gross value of contributions by the member or a third party on their behalf to personal pension schemes are deducted when calculating Adjusted Net Income.
Contributions paid into someone else's pension are treated as either exempt or potentially exempt transfers for IHT purposes. For income tax purposes they are treated as if they were made by the member of the pension scheme not the payer.
Identify someone in the child benefit tax trap:
Identify the amount of Adjusted Net Income in excess of £50,000.
Make a net relief at source contribution pension contribution of 80% of the excess either as a single or regular contribution in the tax years the tax trap applies.
Both case studies use the rates, bands and allowances for the current tax year and exclude National Insurance.
Scottish taxpayers will pay the Scottish rate of income tax (SRIT) on non-savings and non-dividend (NSND) income. NSND income includes employment income, profits from self-employment (including sole trades and partnerships), rental profits, and pension income (including the state pension). Similarly, from 6 April 2019 Welsh Taxpayers pay the Welsh Rate of Income Tax (CRIT (C for Cymru)) on NSND income.
Other tax and deductions such as Corporation Tax, dividends, savings income and National Insurance Contributions etc. will remain based on UK rules. This could mean the amount of income tax relief which can be claimed on pension contributions by Scottish and UK tax payers may not be the same. For more info on SRIT and how this works in practice, please visit our facts page. For more info on CRIT and how this works in practice, please visit our facts page.
Grandparents |
Parents |
---|---|
Facts |
Facts |
Problem |
Problem |
Solution |
Solution |
Impact |
Impact |
Benefit |
Benefit |
Family Tax Saving |
|
Inheritance Tax |
£3,200 |
125% relief from an £8,000 cheque! |
Grandparents |
Parents |
---|---|
Facts |
Facts |
Problem |
Problem |
Solution |
Solution |
Impact |
Impact |
Benefit |
Benefit |
Family Tax Saving |
|
Inheritance Tax |
£1,200 |
124% relief from an £3,000 cheque! |
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