The child benefit tax trap
Around 1.4 million families now lose their child benefit because one parent earns over £50,000 a year.
As soon as one partner earns over £50,000, child benefit is gradually withdrawn via a tax charge, and once earnings exceed £60,000 the whole benefit is lost.
The £50,000 threshold of the High Income Child Benefit Charge applies to each individual. The benefit is paid in full if both parents earn £45,000 (creating a joint income of £90,000). But as soon as one parent earns over £50,000 – even if the other does not work – they’ll be hit by this charge. Parents can opt out of receiving child benefit but they should still register to receive national insurance credits if one partner is not working.
The tax charge can be reduced by increasing pension contributions to reduce taxable pay to below the relevant threshold in some cases. Remember though, money in a pension cannot be accessed until at least age 55.
The Financial Conduct Authority does not regulate tax advice.
Tax laws can change.
Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.