Child Benefit: Income can trigger tax charge but pension contributions could combat issue

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The High Income Child Benefit Charge may need to be paid if a person has an individual income of more than £50,000, and either they or their partner gets Child Benefit, or someone else gets the payment for a child living the “high earner” who contributes at least an equal amount towards the child’s upkeep. Whether the child is one’s own or not doesn’t matter.

Being impacted by the tax charge could prompt some to opt to stop getting Child Benefit, while others may continue to get the money but pay any tax charge at the end of the tax year.

This needs to be done by filling in a Self Assessment tax return each year.

Then, what is owed needs to be paid.

“If you do not usually send a tax return, you need to register by 5 October following the tax year you need to pay the tax charge,” states the government.

It’s possible to use the Child Benefit tax calculator to get an estimate of how much a person may owe for each tax year.

Child Benefit and the HICBC is something which Director of Public Policy at national financial planning firm LEBC Kay Ingram has commented on.

“Parents where either have income in excess of £50,099 pay tax on Child Benefit,” she said.

“Child Benefit is payable at £21.05 for the eldest child and £13.95 per week for younger children under 16 or still in full time education up to age 20.

“The Benefit is taxed at one percent for every £100 that their income exceeds £50,000 pa so that once income is over £60,000 the whole benefit is taxed at 100 percent.

“Some parents choose to waive the Benefit to avoid the tax charge.

“This year many parents may have seen their income disrupted as a result of a loss of earnings triggered by lockdown.

“They may no longer have to pay the tax and those who have waived Child Benefit may wish to claim it again.

“Payment can only be backdated for three months, so claiming sooner rather than later is clearly sensible.”

While a drop in income may have meant some are now able to receive Child Benefit without being impacted by the tax charge, others will continue to be affected.

However, it may be there is a way to legally eliminate the tax, and this could be done while boosting retirement savings.

“Trying to save for your future, while bringing up a family, may seem hard to achieve but there are circumstances where making pension savings can increase State support for the family,” Ms Ingram has previously said.

It may be that the HICBC can be reduced – or even removed altogether – for those affected, my making pension contributions.

Another option is to do this through making charitable donations, the chartered financial planner pointed out.

Both of these actions would have the effect of reducing taxable income, she said.

Ms Ingram also signposted the Child Benefit Tax Charge calculator on the HMRC website, which explains how much tax is payable and the amount of Child Benefit due.

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