Understanding the different ways to reduce tax is an important aspect of financial planning. Some clients may not wish (or be able) to reduce their tax contributions, but they should always be able to make an informed decision and understand their options.
If you have children eligible for child benefit and have an income over £50,000, you may have to pay a tax charge known as the ‘high income child benefit tax charge’.
This was introduced in 2013 to help reduce the UK’s national debt and to target benefits at those in lower-income groups who needed them most.
Key facts on child benefit
Child benefit is currently:
Qualifying children are:
What is the tax charge?
An income tax charge applies to people who get child benefit and whose income, or partner’s income, is more than £50,000 in a tax year.
If income is between £50,000 and £60,000, the charge is a proportion of the child benefit received. If it’s over £60,000, the amount of the charge is the same as the child benefit received.
The tax charge is 1% of the amount of child benefit received for every £100 of excess income over £50,000. For example, if your adjusted net income was £55,000 the tax charge would be 50% of any child benefit received (£55,000 – £50,000 = £5,000/100 = 50).
It’s important to note that child benefit itself isn’t being taxed or reduced. It will continue to be paid in full to the claimant unless they opt not to receive it.
Planning for the tax charge
How can you reduce or avoid the high income child benefit tax charge?
As adjusted net income allows for deductions for gift aid and pension contributions, clients could consider making gifts to charities using gift aid and/or making pension contributions.
Pension contributions can also be made using salary exchange which has the added benefit of leading to savings in National Insurance.
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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