{"id":25790,"date":"2024-02-07T15:38:23","date_gmt":"2024-02-07T15:38:23","guid":{"rendered":"https:\/\/smh.group\/?p=25790"},"modified":"2024-02-07T15:38:23","modified_gmt":"2024-02-07T15:38:23","slug":"the-double-edged-sword-of-increased-income","status":"publish","type":"post","link":"https:\/\/devstagesite.co.uk\/smhgroup\/the-double-edged-sword-of-increased-income\/","title":{"rendered":"The double edged sword of increased income"},"content":{"rendered":"<p><strong>With frozen tax bands and other thresholds, taxpayers need to be mindful of the consequences when their income rises. A boost in earnings may entail more than just dealing with a larger tax obligation.<\/strong><\/p>\n<p>Higher rate taxpayers need to look at which allowances, reliefs or benefits are no longer claimable and those which are now worth claiming.<\/p>\n<p><strong>Lost reliefs<\/strong><\/p>\n<ul>\n<li><strong>Marriage allowance<\/strong> \u2013 this is not available once the recipient spouse\/civil partner becomes a higher rate taxpayer. The person who made the claim (the lower income spouse\/civil partner) should now cancel it on their Government Gateway. However, one way to retain the allowance is for the recipient to make sufficient pension contributions so that their net income remains within the \u00a350,270 basic rate threshold.<\/li>\n<li><strong>Child benefit<\/strong> \u2013 this starts to be clawed back once income hits \u00a350,000 and is completely lost if income reaches \u00a360,000. Within this band, each \u00a31,000 of extra income represents a 10% loss of child benefit. The claw back is by way of a tax charge, with details declared on a self-assessment tax return. Again, pension contributions can reduce the level of income.<\/li>\n<li><strong>Childcare<\/strong> \u2013 if income exceeds a \u00a3100,000 threshold, tax-free childcare will no longer be available. Full free hour entitlement will also cease. Both must therefore be cancelled, with the tax-free childcare entitlement amended on the claimant\u2019s Government Gateway. Pension contributions can, once again, help to remain below the threshold.<\/li>\n<\/ul>\n<p><strong>Using pension contributions<\/strong><\/p>\n<p>Pension contributions are more attractive once relief is at a higher rate than just the 20% basic rate. Contributions make even more sense if entitlement to marriage allowance, child benefit or childcare is preserved. Given that the personal allowance starts to be tapered away at the same point that tax-free childcare is lost, the overall cost of pension contributions where income just exceeds \u00a3100,000 can be negligible.<\/p>\n<p><strong>Tax trap<\/strong><\/p>\n<p>Aside from the increased rate of tax when income crosses a threshold, the savings allowance is cut in half to \u00a3500 for higher rate taxpayers. This is lost altogether once income reaches \u00a3125,140. Tax on savings can therefore increase despite the amount of savings income not changing. Investing in Individual Savings Accounts (ISAs) can mitigate the problem, as can pension contributions particularly if income is above the \u00a350,270 threshold.<\/p>\n<p>There are different childcare schemes in Scotland, Wales and Northern Ireland, and Scottish tax rates and thresholds differ.<\/p>\n<p>For information on tax relief for private pension contributions visit the <a href=\"https:\/\/www.gov.uk\/tax-on-your-private-pension\/pension-tax-relief\" target=\"_blank\" rel=\"noopener\">government website<\/a>.<\/p>\n<p>Our\u00a0<a href=\"https:\/\/devstagesite.co.uk\/smhgroup\/chartered-accountants\/\"><strong><span style=\"text-decoration: underline;\">Yorkshire and Derbyshire based Accounting &#038; Business Advisory<\/span><\/strong><\/a>\u00a0can assist on\u00a0<strong>0114 266 4432<\/strong>\u00a0or\u00a0<span style=\"text-decoration: underline;\"><a href=\"mailto:info@smh.group\"><strong>info@smh.group<\/strong><\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>With frozen tax bands and other thresholds, taxpayers need to be mindful of the consequences when their income rises. A boost in earnings may entail more than just dealing with a larger tax obligation.<\/p>\n","protected":false},"author":4,"featured_media":25793,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[3],"tags":[77,1235,1233,1231,21,555,1232,1234,323],"class_list":["post-25790","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-smh-accounting-business-advisory","tag-financial-planning","tag-fiscal-responsibility","tag-frozen-tax-bands","tag-income-increase","tag-income-tax","tag-personal-finance","tag-tax-implications","tag-tax-thresholds","tag-taxation"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>The double edged sword of increased income - SMH Group<\/title>\n<meta name=\"description\" content=\"With frozen tax bands and other thresholds, taxpayers need to be mindful of the consequences when their income rises.\" \/>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The double edged sword of increased income - 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