Calculating Net Adjusted Income for Child Benefit High Income Tax Charge

Hello, To be clear, is "adjusted net income" what I earn before tax, national insurance and pension deductions, or after? I have always thought that "Gross" is before any taxation, and "Net" is after taxation (take home pay). Thanks

Hi HMRC Admin X, Can you help me understand the ANI calculation? If you earn £110k in PAYE salary and you make £7k contributions to a relief at source pension. Is the adjusted net income either: £110k - (7k * 1/(1-0.2)) = £101,250 (because you only ‘gross-up’ basic rate 20%) £110k - (7k * 1/(1-0.4)) = £98,333 (because you ‘gross-up’ to higher rate 40% if you’ve paid higher rate on the whole of your contribution) I guess this would make quite a difference to ANI but I'm not sure which one is correct and why. Thanks!

Hi
Yes adjusted net income will be your gross income before dedcutions.

Hi clen
If the pension contributions are deducted from your salary before the tax is calculated then you would not deduct again.
You would only deduct if from your net salary.

Hi HMRC Admin 10, Yes. The £7k contributions are made after income tax has been paid at higher rate, 40%. So, the pension tax relief will be 40% (20% given as additional contribution to the pension by the Relief At Source system, and 20% claimed back on self-assessment) but what is the amount that should be taken off the gross income (£110k) to get to the Adjusted Net Income? Thanks

Hi clen,
If you made a contribution to a pension scheme where your pension provider has already given you tax relief at basic rate, take off the ‘grossed-up’ amount,what you paid plus the basic rate of tax.
So, for every £1 of pension contribution you made, take £1.25 from your ‘net income’.
Please guidance here:
Personal Allowances: adjusted net income
Thank you. 
 

Hi HMRC Admin 25, Thanks for the answer, but it still leaves the question of what percentage to gross up and why. Your example says 20% (basic rate) despite the contribution having been made after 40% (higher rate) income tax has been paid. So, why is it not grossed-up 40%? The below HMRC guidance note explains how to gross-up a net figure and uses 40% as that is the rate for that tax. So, if grossing-up is dependent on what tax was paid on the net sum then why would the pension contribution not be grossed-up 40% when higher rate income tax is paid on it? Quote: "...Ignoring any nil rate band, a ‘gross’ legacy of £100 subject to tax at a rate of 40% would leave a net sum of £60 (£100 less £40 tax). So to gross up a net sum of £60 you have to multiply this by 100 and divide by 60 to calculate the ‘gross’ legacy of £100..." Source: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm26122 Could you be specific about what percentage to use when grossing-up in the instance of a pension contribution after higher rate income tax and why? Thanks and kind regards

Hi clen,
For pension contributions the pension company claims 20% tax relief on the contribution made.
If you are higher rate taxpayer then relief is due at 40%.
As the pension company already claimed 20% tax relief then you can claim 20% to come to the 40% higher rate tax band.
To gross up your contribution you would multiply your net contribution by 100/80. 
Thank you.

 

Hello, I would like to ask if I deposited monies in a Lifetime ISA with a purpose of taking them out at the age of 60 (or later) as a supplement of my pension should be used in calculating 'net adjusted income'? I opened account and put quite a bit of my income there and if I access it before the age of 60 I will have a 'net loss' as per current regulations. Thank you for any advice.

Hi K York,
You cannot claim relief for the tax paid on the contributions as the contributions would actually give tax relief against your income.
You will need to refer to guidance here:
Relief for foreign tax paid (Self Assessment helpsheet HS263)
Please look at this in conjuntion with double taxation relief to see what needs to be declared.
Thank you.
 

Hi A_W12

The payments to an ISA would not be deduced for adjusted net income.

Thank you.

Hi there, I'm interested in the giving of £10 000 to one's partner, where I am the high earner. If I do this, does it have to be from my salary? And if I give e.g. £6 000, can it still count towards the £10 000 - I just pay reduced tax? Thanks for you help.

Hi,

As we would need to clarify a few facts about your query, you will need to contact our Income Tax team for advice.

Income Tax: general enquiries

Thank you

Hi - my son (only child) enters advanced education in September. So I understand child benefit for the tax year 2024/25 end then. Does my earnings I.e if they go above £50k matter from September onwards for the remaining months of the tax year as I will only get the first 5 months worth of payments and would stop claiming child benefit end of August? Thanks

Hi paul Mcman,
If you are entitled to the Child Benefit claim for only part of the tax year and your income is above the £50K threshold you would only pay the Higher Income Child Benefit charge on the apportioned amount of Child Benefit received. 
Thank you. 

 

If starting University in September- would child benefit for a school leaver this year end on 31 August?

Hi, Would you be eligible for the 30 hours free childcare if your gross pay is £105k pa (including bonuses), but have put £10k into the companies defined contribution pension scheme. Therefore your taxable income is £95k? Thanks.

Hi paul Mcman,

You will need to contact our Child Benefit team for advice.

Child Benefit: general enquiries

Thank you.

Hi,

You would in theory be eligible for this, though you may require more specific advice depending on your circumstances, contact our Child Benefit department by webchat or phone.

Child Benefit: general enquiries

Thank you.

Hi, I'm a little confused about the pension contributions. Are they included or excluded? I'm paid £55,000 via PAYE but have a pension contribution of 12.5% of gross earning deducted. For child benefit does that mean I earn £55,000 or £48,125 (55000 - 6875)?