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05.04.2022

The Child Benefit Trap

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Nadia Khan DipPFS Cert CII (MP), Wren Sterling

The Child Benefit Trap

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  • 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.
  • child benefit
  • Pension contribution
  • Financial Planning
  • HMRC
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Nadia Khan DipPFS Cert CII (MP) Wren Sterling

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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