Tax Planning Can Retain Child Benefit

Child Benefits

High-income parents may be failing to take advantage of a tax planning quirk which can save thousands of pounds a year in child benefit.

Tax Planning Advisors Can Help Retain Child Benefit

Parents can claim child benefit currently worth £20.70 a week for the eldest or only child and £13.70 a week for any additional children.

But working families in receipt of child benefit face paying the high-income child benefit charge on a sliding scale where any parent earns more than £50,000 a year.

Tax is deducted at 1% of the amount of child benefit for each £100 of income between £50,000 and £60,000. For those earning more than £60,000 a year, the charge is 100%.

HMRC (Her Majesty’s Revenue & Customs) calculates your child benefit entitlement using your adjusted net income.

This relates to your total taxable income, including gross salary, work-related benefits and any dividend or rental income – but not your pension contributions, which are taken out of your income before tax.

Steve Webb, director of policy at Royal London, recently said:

“For families with higher earnings, putting money into a pension plan is already a very attractive option, but what they may not actually be aware of is the additional advantage of looking at reducing the tax charge they face.

“This is another major reason for families in this income bracket to prioritise pension saving.”

Reducing adjusted net income

If you’re a parent earning around £50,000 a year, you can keep your adjusted net income below the threshold by:

  • increasing personal pension contributions
  • considering salary sacrifice in exchange for childcare vouchers
  • donating money to charitable causes through Gift Aid

Our Assured Wealth & Estate Planning Wilmslow Financial Advisor, Altrincham Financial Advisor, Warrington Financial Advisor,  Liverpool Financial Adviser, West Kirby Financial Advisor or Manchester Financial Adviser teams can help with your financial planning.

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