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Salary sacrifice is route to avoid child benefit cuts

Pension experts say the Government’s decision to cut child benefit payments for families with high-earners presents a salary-sacrifice tax-planning opportunity for advisers.

In last week’s Budget, Chancellor George Osborne announced changes to child benefit rules that mean payments will start to be reduced for families where one member is earning more than £50,000.

Osborne said families with one wage of £50,000 or more will lose 1 per cent of the benefit for every £100 they earn over the new threshold from April 2013.

Families with a person earning more than £60,000 will not receive any of the benefit.

Barnett Waddingham associate Rob Thomas says: “This may have unintended consequences by creating a sweet spot for some high-earners who want to make pension contributions via salary sacrifice. For example, a person earning £62,000 paying a personal gross pension contribution of £5,000 per year on a non-salary-sacrifice basis loses child benefit.

“If the same person were to sacrifice £5,000 of salary to have a reduced salary of £57,000, they would retain some of their child benefit and their employer pays a pension contribution of £5,000 into the individual’s pension plan.

“The individual also has a tiny increase in take-home pay due to National Insurance savings and the employer is happy because of the savings he makes on the amount of sacrificed contribution.”

Hargreaves Lansdown pension investment manager Laith Khalaf says: “I do not think this was the Treasury’s intention but it presents a nice bonus for people earning more than £60,000 who use salary sacrifice.

“However, there are plenty of factors other than child benefit that people need to consider when they are making a pension contribution.”

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