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05.04.2022

The Child Benefit Trap

Nadia Khan DipPFS Cert CII (MP)

Nadia Khan DipPFS Cert CII (MP)

Wren Sterling

Financial Adviser, Mortgage Adviser, Will & Estate Planner, Investment & Wealth Manager, Pension Adviser

Workers with children who earn close to £50,000 a year may unwittingly owe HM Revenue & Customs hundreds, and in some cases thousands, of pounds because of the high-income child benefit charge.
Those earning less than £50,000 a year are unaffected.
The charge is calculated on a sliding scale – and is equal to 1% of the amount of child benefit for each £100 of income between £50,000 and £60,000. Someone earning £55,000 a year has to repay half the child benefit they or their partner received that tax year. For those earning more than £60,000, the charge is equivalent to 100% of the child benefit received.
Every year the high-income charge catches out thousands of families who are either unaware of it or who find themselves unwittingly earning more than they thought.
A worker who earns a headline rate of £48,000 a year can find that their true income for tax reasons is above £50,000 because they receive other benefits such as a company vehicle or even private medical insurance. Other workers have been caught out after receiving a pay rise, or a bonus that has tipped them over the £50,000 threshold.
Child benefit for 2022/23 tax year is worth £87.20 per month for the first child and £57.80 for additional children.
Families can choose to opt out of getting child benefit payments and thereby avoid the charge, and many have done this.
The other way to avoid the charge is to reduce your taxable income by paying more into your pension. Any contributions made into a company or personal pension scheme will reduce the final amount of adjusted net income, allowing you to avoid the charge.

HMRC
Financial Planning
Pension contribution
child benefit

Nadia Khan DipPFS Cert CII (MP)

Nadia Khan DipPFS Cert CII (MP)

Wren Sterling

Financial Adviser, Mortgage Adviser, Will & Estate Planner, Investment & Wealth Manager, Pension Adviser

I am an Independent Financial and Mortgage Adviser and have worked in Financial Services for over 12 years. During my career I gained experience in assisting both individual and corporate clients.…

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