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Net Adjusted Income: Crucial Information for Parents

3 Feb 25
3 MIN READ TIME

Why net adjusted income is so important

Many parents overlook the complexities of net adjusted income, leading to costly financial mistakes. One of the most common errors involves pension contributions and eligibility for government childcare schemes. To ensure you make informed decisions, we’ll clarify how net adjusted income is assessed and how strategic planning can help you optimise your finances.

Optimise your net adjusted income, with a no-obligation financial planning consultation.

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A case study

Kate and Mark are new parents, both committed to securing the best future for their family. Kate earns an annual salary of £130,000, placing her above the income threshold for key government childcare benefits.

To bring her income below the relevant threshold and qualify for these schemes, she began making additional pension contributions. However, she made a critical mistake.

The miscalculation

Kate increased her pension contributions by £1,000 per month, beginning in January. She assumed this would immediately reduce her net adjusted income and enable her to access government childcare support. Unfortunately, this assumption was incorrect.

Net adjusted income is assessed over the entire tax year (April to April), not on a monthly basis. Despite her increased pension contributions in the later months, Kate’s total net adjusted income for the full tax year still exceeded the qualifying threshold.

The financial impact

As a result of this miscalculation, Kate remained ineligible for government childcare support and effectively lost £1,000 per month in potential savings. Had she structured her pension contributions strategically from the start of the tax year, she could have saved £12,000 over the course of the year while also benefiting from additional pension growth.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected, and the value may therefore fall as well as rise. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Key actions

To avoid similar pitfalls, consider the following:

  1. Plan well in advance – Adjustments to net adjusted income should be made at the start of the tax year (April), not mid-year, to maximise potential savings.
  2. Understand the full-year assessment – Government childcare schemes evaluate income over a 12-month period, not on a rolling basis.
  3. Assess the financial trade-offs – While pension contributions can reduce net adjusted income, it is essential to balance contributions with immediate financial needs.

Steps to optimise your net adjusted income

With April fast approaching, now is the time to prepare. Here’s how you can take proactive steps:

Step 1: Determine the benefits available through government childcare schemes based on your income level.

Step 2: Calculate the impact of increased pension contributions on your take-home pay and long-term savings.

Step 3: Compare the financial advantages of reduced net adjusted income with the benefits of additional pension growth.

Many parents find that with careful planning, they can strike a balance between immediate cost savings, and long-term financial security.

Act now to establish your financial position

With the new tax year just around the corner, now is the ideal time to take control of your finances. By planning ahead, you can optimise your net adjusted income, access valuable childcare benefits, and strengthen your long-term financial security.

If you want to ensure you are making the right decisions without unnecessary complexity, book a no-obligation financial planning consultation for the start of the new tax year.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Optimise your net adjusted income, with a no-obligation financial planning consultation.

Book A Demo

Should you require more information or have particular questions, we invite you to contact us at your convenience.

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