The season of giving is upon us and there are some instances where giving can have beneficial impact on an individual’s financial position.
Making gift aid contributions can reduce an individual’s ‘adjusted net income’ which can have a positive impact on the High Income Child Benefit charge (HICBC) and their personal allowance.
The HIBC is based on each partner’s ‘adjusted net income’ which, in broad terms, is their total taxable income less any gross gift aid contributions and gross pension payments which have received relief at source. Where a person, or a couple, is in receipt of child benefit, and either has adjusted net income of between £50,000 and £60,000, the HICBC applies. The amount of the charge will be a 1% deduction of the amount of Child Benefit for every £100 of income which exceeds £50,000, meaning that for those with income exceeding £60,000, they will be liable to the charge on the full amount of Child Benefit. If through a combination of gift aid and personal pension contributions the partners can get their adjusted net income below the threshold of £50,000 then the will receive the full amount of any child benefit without any tax charge.
In a similar vein, for an individual affected by the loss of their personal allowance as they have ‘adjusted net income’ between £100,000 and £123,700, both gift aid contributions and personal pension contributions can minimise the impact of this effective rate of tax of 60%. In the case of the latter this in effect gives tax relief for personal pension contributions into a relief at source scheme of 60%.
The old adage of “it is better to give than receive” still holds true, however in the above scenarios there is an additional positive outcome for the ‘giver’.
James Hay Partnership, the platform for retirement wealth planning, has been working with financial advisers and clients for over 30 years to administer pensions, savings and investments in a cost and tax efficient way. Today over 50,000* clients trust us to look after more than £16 billion* worth of pension and investment savings.
From the very first day we have challenged industry norms as we've responded to changing client needs - from being the first SIPP provider in the UK, through to developing our modular approach to retirement wealth planning, which we launched in 2013.
The Modular iSIPP embraces fair and flexible pricing meaning the customer only pays for what they use, while they use it. This has now been evolved through the Modular iPlan to include other non-pension wrappers such as GIAs and ISAs.
We are able to continue to innovate thanks to being part of the IFG Group, a focused financial services company specialising in the provision of independent financial advisory and administrative services.
IFG Group plc is listed on the Irish and London Stock Exchanges.
*as at March 2018