Perhaps the only best perk of having kids in the UK is that the state gives you free money. However since 2013, the icily-named High Income Child Benefit Charge (HICBC) has tapered payouts for households where either partner’s income is above a certain threshold.
This income threshold is currently £60,000 a year.
Above that level Child Benefit is tapered via the HICBC at a rate of:
- 1% of the Child Benefit is repaid for every £200 of income above £60,000
At £80,000 and above the benefit has been fully withdrawn. (And no further HICBC is due).
A two-child household where one partner’s income is over £80,000 will lose £2,251.60 of Child Benefit in the 2025/2026 tax year due to the HICBC.
That’s quite a chunk of change.
What counts as income?
Your ‘net adjusted income’ determines liability for the HICBC.
Net adjusted income means money from all sources, including savings interest and dividends (outside of SIPPS and ISAs) and income from rental properties – adjusted for certain allowances.
In short: anything you’d declare to the taxman.
Your pension and the High Income Child Benefit Charge
Are you a Monevator-reading parent whose Child Benefit is going the way of sex, sleep, and skinny jeans?
Let’s see how you can keep your free money and retire richer, too.
Sadly the strategy – putting more into a pension to reduce your income – does require some near-term sacrifice.
In the original version of this post – written the day after the HICBC was announced in 2012 – I claimed…
I’m pretty sure I could drive a lawnmower through the average £60,000-earner’s verdant budget, so I don’t think that should be an obstacle for most people who put their mind to it.
Besides, this strategy enables you to keep getting free money from the taxpayer – from the likes of me.
So if you’re still complaining, stop it and start saving instead.
…but I’m much less sanguine now.
Even middle-class families are struggling to budget in today’s low-growth, high-tax economy.
Positive changes since 2024
At least the High Income Charge Benefit Charge isn’t as onerous as it was.
Up until 2024 the income threshold was £50,000 and the benefit was tapered at 1% for every £100. Depending on how many kids you had, your effective marginal tax rate (EMTR) could be 71% or more.
However the higher £60,000 threshold and the taper rate being halved since 2024 has brought that highest EMTR down to 57% for a three-child household.
Still not great. But less ludicrous than before.
The High Income Child Benefit Charge
Parents are paid Child Benefit at two different rates:
- £26.05 a week for the eldest or only child
- £17.25 a week for every additional child
For instance, a two-child family receives:
(£26.05 + £17.25) x 52 = £2,251.60 a year
…provided neither household partner’s income is above £60,000 a year.
Above £60,000, the benefit is progressively withdrawn via the HICBC as I outlined earlier.
Note: many people think a combined household income of over £60,000 triggers the tapering.
This is incorrect. Only one of you needs to trigger the £60,000 tripwire.
If you earn £40,000 and your partner earns £30,000, say, then your Child Benefit remains unmolested.
That’s because neither of you has an income above the £60,000 threshold – despite your household bringing in £70,000 total.
How the HICBC claws back Child Benefit on incomes over £60,000
The maths is straightforward:
- For every £200 of income over the £60,000 threshold, 1% of the benefit is withdrawn via the HICBC.
- You can still receive Child Benefit. But you’ll pay some or all of it back via the Charge.
- By £80,000, all your Child Benefit is tapered away.
- The HICBC is collected via your annual self-assessment tax return. If you don’t submit one and your income makes you liable for the HICBC, you must register with HMRC to begin filing.
- From August 2025 you’ll reportedly be able to pay the HICBC via PAYE. I’m sure there will be no delays, and that everything will run smoothly.
Note that income generated within an ISA doesn’t count towards the £60,000 threshold.
After years of frozen tax brackets and all the dividend and capital gain allowance cuts since 2012, I can’t believe many Monevator readers still have unsheltered assets that they could yet shield within an ISA.
But for the record, reducing your ‘net adjusted income’ if you claim Child Benefit is another reason to ISA-fy all you can.
Losing Child Benefit is like paying a higher marginal tax rate
Clawing back Child Benefit via the HICBC is effectively a higher marginal income tax rate on earnings between £60,000 and £80,000.
For a parent with an income between £60,000 to £80,000, their effective marginal income tax rate (EMTR) rounds to:
- 47% for one child
- 51% for two children
- 56% for three children
Your EMTR rises with more children because you are repaying more Child Benefit for every extra £1 you earn over the threshold, via that £200 taper.
Before any HICBC, you pay higher-rate tax of 40% on income between £60,000 to £80,000.
Your EMTR = 40% + (Annual Child Benefit/200)
For example, you have two children and so claim £2,251.60 in child benefit. You earn over £60,000.
EMTR = 40% + (2251.60/200) = 51%
Ouch!
Using a pension to reduce your income
To keep all the Child Benefit, both parents need to earn less than £60,000. This way your household is not liable for the High Income Child Benefit Charge.
But what if one or both of you is unfortunate enough to enjoy a higher income?
There are a few things you can do about it:
- Split up with your higher-earning partner
- Tell your boss you will work for free
- Tell your husband, wife, or whoever, that they can quit their high-paying job in return for certain non-taxable favours
- Make hefty pension contributions to reduce your taxable income
I’m guessing the final option will be the most palatable for Monevator readers. (Though as I haven’t met your spouse I can’t be sure.)
Topping-up your pension to reduce your income is the best way to keep all your Child Benefit. (That’s assuming you’re not a high high-earner, in which case it won’t work. Or if you’re certain you’ll die before you can access your pension (at age 55/57) and so be unable to spend it, in which case there’s no point.)
The method is simple:
Say you’re the sole earner in your house, and you make £65,000 a year.
Increasing your pension contributions by £5,000 a year will reduce your income to £60,000. You’ll therefore keep all your child benefit.
If yours is a two-income family and you both earn over £60,000, you’ll both need to make extra pension top-ups to take you both below the danger zone.
All this is perfectly legal. (Recall the difference between tax evasion and avoidance).
And doing so is probably worth it if you can – though not quite the slam dunk it was under the old system, with its even more punishing effective rates.
Today a higher-rate taxpayer with two kids who uses extra pension contributions to reduce his or her income enough to keep all their Child Benefit will effectively be paying just 49p for every £1 of top-up into their pension.
That’s doubling the invested money at a stroke – before even a whiff of any investment returns.
Do remember though that your pension income will eventually be subject to tax. But very probably at a lower rate than the EMTR implied by paying the High Income Child Benefit Charge.
Important: None of this is tailored advice for your circumstances and I’m not a tax adviser. Get professional advice if you need it.
Still earning too much to escape the charge?
Some people will earn too much for it to be practical to retain Child Benefit solely by increasing their pension payments.
I’m sorry for your loss.
My sympathy is limited the richer you are – as I said earlier, I don’t love paying for other people’s kids’ mini-pashminas and pony-riding classes.
But for the record, there may be other ways to further bring your income down.
You might be able to sacrifice some salary in return for certain company benefits, for example.
It might even be possible to tilt your remuneration towards very long-term share options or similar. Obviously you’ll need to do your homework, and probably take professional advice.
If you earn more than £60,000 because you have savings or investments generating income outside of an ISA or pension – and you’re more confident in your relationship than I ever would be – then you could transfer some of the income-generating assets to your lower-earning partner. (Make sure you don’t push their total income over the £60,000 threshold, obviously).
Does all this stick in the craw of some child-less readers?
Well yes. I appreciate Child Benefit wasn’t designed to boost the pensions of the middle classes. As I said, I’m just explaining what’s possible. I’m not passing moral judgement.
Also, I didn’t invent the Byzantine tax and welfare system. If I had it wouldn’t look like this. (Personal finance bloggers would get special tax reliefs. Nobody thinks of our struggles!)
Should you claim Child Benefit even if you’ll repay it via the charge?
Yes. There are associated National Insurance credits that mean it’s best to claim Child Benefit, even if you ultimately repay it or opt-out of actually receiving it.
Don’t try to illicitly avoid the High Income Child Benefit Charge
You’ll often come across people earning over the £60,000 threshold who’ll tell you they don’t pay the HICBC.
Not because they make extra pension payments to bring their income down. But simply because they don’t declare their status properly to HMRC.
This is tax avoidance. It’s illegal, which is all that really matters. But you’re also liable to get caught and fined.
Okay, it’s true the number of penalties collapsed in the final year of the Tory government. But I can’t see why our cash-strapped current administration would let people off the hook.
You probably don’t flirt with criminality elsewhere in your life. Why do it here?
Living a £60,000-a-year lifestyle
The elephant in the room is of course that you can’t spend your pension until you’re, well, a pensioner.
Even though you’ll be quids-in one day by boosting your pension pot – thanks to your generous fellow taxpayers – you’ll need to take home enough now to keep your little darlings alive enough to qualify for their Child Benefit. Not to mention any other spending you consider essential.
You’ve no choice but to take a scythe to your budget. Only you can work out what’s dispensable and what’s non-negotiable for you.
As for your little cost centres – perhaps they could get a paper-round?
Is the High Income Child Benefit Charge unfair?
I was more militant in 2012 when I first wrote this article. Here’s my younger self, with only very light edits:
I’m the first to agree the benefits system is bloated, and that we’d do better tackling income inequality through an overhaul of the tax system – as opposed to politicians bribing us with our own money through welfare payments, tax perks, and other kickbacks.
On the other hand, you’re my dear readers, and many of you stand to lose your child benefit next year […]
Now, we could debate the politics of welfare all day. (Let alone the ethics of having three children).
Supporters of universal child benefit argue that an income of £60,000 isn’t any great shakes, especially in the South East.
Buying a house with room for a kid or two is already a Herculean feat for anyone down here without a rich benefactor. (Say a parent, a lottery win, a bank bonus, or a mortally-challenged grandparent).
And do we really want a society where only the poor can afford to have kids?
On the other hand, London property prices are just as high for us childless singletons – yet we don’t get a handout from the public purse.
Moreover I see people wasting money all day long – especially middle-class parents.
Slightly more tongue-in-cheek… perhaps I need to secure my financial future even more than a parent does. Why? Because there will be no spare room in my daughter’s house in my wrinkly decrepitude.
So why should my taxes pay for someone’s £1,145 Bugaboo Fox 5 all-terrain stroller?
In our over-crowded world, I’m also sceptical that parents are bringing up future taxpayers on my behalf.
That’s the economics of a Ponzi scheme – and one ill-suited to a planet with limited resources.
Ah, the easy certainty of Angry Young-ish Man.
I update the Bugaboo link and price in that excerpt, incidentally. Apparently the hilariously bougie ‘Bugaboo Lambskin Footmuff’ has been discontinued.
Who knows how many were (effectively) bought with Child Benefit?1
Investing for the child’s benefit
In the years since 2012, it’s transpired that some savvy parents who receive but don’t need to spend Child Benefit – surely a dwindling number, given the cost of living crisis – often stash the payments into a Junior ISA.
I applaud that as the Monevator editor. But as a taxpayer I have ‘questions’.
Oh well, we all have our views on all this stuff.
Today’s more milder me just hopes the pension workaround will help those readers who need it.
Home economics by Kafka
If you’ve ever wondered why our tax system is so unfathomable, the High Income Child Benefit Charge provides a perfect case study.
A silly system was modified with an even sillier system, at great expense and hassle for everyone – including HMRC – and despite it producing ‘cliff edges’ of unfairness.
The jammiest couples who follow this pension top-up strategy are working parents earning, say, £61,000 each.
If they both do £1,000 in extra pension payments they’ll keep all their Child Benefit – and retire richer. This despite them still having a household income of £120,000 a year.
In contrast, consider a sole earner in London on £80,000 with a full-time child-rearing spouse.
This breadwinner can’t afford to reduce their income by £20,000. Mortgage and energy costs have skyrocketed. And nearly two-fifths of their income is now taxed at the higher-rate, thanks to frozen tax brackets.
Such a parent will lose all their Child Benefit. Even though their household lives on £40,000 less pre-tax than the previous couple.
If you wanted a policy to encourage both parents to work full-time, you could do worse. I doubt that was the idea.
Remember this the next time a politician talks about being ‘fair’.
Everyone is at it in 2025
Back in 2012, Monevator was one of the first non-accounting websites to talk about making pension contributions to lower your earnings below a certain threshold, to reduce your effective marginal tax rate.
Obviously the concept wasn’t new. But most middle-class people didn’t think about it.
How different from today.
Millions more now pay higher-rate tax, household budgets are bloated with inflationary pressures, and a sluggish economy means nearly everyone is watching their pennies.
Trying to find an edge in the tax system is no longer a hobby for financial nerds. It’s a necessity for everyone.
This article on the High Income Child Benefit Charge was updated in July 2025. Comments below may refer to the previous regime with a different income threshold and taper rate. Please check the comment date if unsure.
- Probably none, but a boy can dream, or rather shake his fist/head… [↩]
Great article!! Is this the case for VCT too?
Thanks
Child Benefit needs to be contained, but Osborne’s solution is complex and divisive. Much better to have restricted it to two children. What part of the phrase “tax simplification” don’t the government get?
I know this is a well beaten drum but I cannot believe that when the average salary is, what, £26-27k, we are subsidising those with at least one salary of £50k plus. Benefits should be a safety net and, in my opinion, someone on £50k has more than enough income to put in place their own safety net.
Guy
Can you contribute in to a Save As you Earn scheme and a Buy As You Earn Scheme where you buy the shares of the company you work for to bring down your total tax year income?
@pkora94 SAYE is post-tax and share incentive programmes (what you calle BAYE I imagine) are pre-tax but the amount you can buy is capped at about £1500 a year. Every little helps, but SAYE doesn’t help you at all. SIP also carries the risk of share price movements going against you, though the 42% tax uplift makes this a lot less risky than it otherwise would be
@TI I admire your courage in tackling this one. I bottled a post on this for fear of getting slaughtered. It escapes me totally why I should be subsidising people of twice the average household income to have children, and if I am, why this isn’t capped at two as SG advocated 😉
Completely agree with Guy here. As I read it, a couple earning 99k between them could potentially remain completely unaffected, while the rest of us fund the upkeep of Flossie’s polo pony.
Bear in mind this isn’t disability benefit we’re talking about, it’s child benefit. Child as in something you chose to have.
If people can’t take responsibility for what pops out of their own reproductive system, they shouldn’t be allowed one.
@Guy. The true average salary is much higher than £25k as that figure doesn’t account for people making money through investments or for contractors who can pay themselves at a lower rate and split income with family members (although that practice may even be illegal now, it still happens).
If you go to the Institute of Fiscal Studies website, you’ll find a calculator that shows you where you are, income-wise, relative to the rest of the population, but be warned, you’ll feel even poorer:
http://www.ifs.org.uk/wheredoyoufitin/
If you’ve got 3 kids and one earner, like my family, then it’s pretty depressing:
– An income of £50K puts you about the 45th percentile (i.e. just below average)
– An income of £60K puts you about the 55th percentile (i.e. just above average)
And yet, the government keep saying that this change will only affect the richest 15% of families. It won’t – it might affect the richest 15% of earners but that’s a very different thing.
Also, there’s scant information about how not claiming Child Benefit will impact the mothers state pension contributions or the ability to obtain a NI number for the child.
Should benefit like this be withdrawn from higher earners? Probably, but it ought to be fair. Also, where do you stop? Surely higher earners can contribute more to hospital treatment and school? The flip side of this approach is that you might say higher earners want a US style system, which benefits them and really shafts the poor. Seems like that’s where we’re blindly heading.
As a family man with two kids and a home maker wife earning approx 55k I think that this is a further shoddy deal.
Comparing my situation with two people earning 27k just makes me fume. They get two sets of personal tax allowances, are taxed at a lower rate and get child benefit.
And dont start telling me I am wealthy because i sure as hell dont feel it.
@Frugal — No, I don’t believe so. VCT income tax relief works via a reclaim on your self-assessment tax return, rather than by reducing your income. (You get given a special voucher when you subscribe for VCT shares for this purpose, although from memory I don’t think you need to use it unless requested by the tax man).
@pkora94 — I am going to defer to the venerable greybeard (okay the white Ermine) on that one. He knows those schemes far better than I.
@Ermine @All — Thanks for your thoughts. I am aware this is contentious and divisive issue, as we’ve already seen in these comments. I’ve tried to soften this a bit with a few comic asides in the post, which may well just annoy someone who feels they’re really getting a kick in the chops from the withdrawal of the benefit!
Regardless of whether you or I agree that someone earning over £60,000 should receive any child benefit from the public purse, I don’t doubt that losing £1,752 that you’d thought you’d receive – and perhaps even worked into your budgeting before you decided to have children – is a blow.
That’s around £3K of pre-tax income, equivalent to a 5% pay cut. Nasty.
@Bob — Just to let you know, you repeated ‘below average’ twice in your comment for both percentiles, so I’ve edited it accordingly (to now say “an income of £60K puts you about the 55th percentile (i.e. just above average)”)
Let me know if this wasn’t what you meant.
@JG
You may be missing the small fact that compared to your household they are losing twice as much lifetime to work. They work 80 hours per week to your 40, and they have to do that to make the same amount of money (OK slightly more due to the extra ~8k second tax allowance and the NI LEL). I think you will agree that their pay per hour is a lot lower, and quality of life accordingly lower 😉
That Epstein woman makes me want to spit. She should have spent some of her first child benefit on condoms and spared us her whining. According to the above calculator my net household income of£49,000 (3 adults) is more than 85% of the population so we are wealthy. Yet her household has more than double the income but she thinks she is entitled because she puts so much in. Yes you are entitled – to free education and free health and cleanish air and semi free roads. You are NOT entitled to pop out 3 children and expect people earning £10,000 to pay tax to support them.
Apposite!
But for me the strange thing about this Heath Robinson tax is why child benefit was not coupled with the existing Child Tax Credit system, which takes account of the family income – no additional admin would be required for families already receiving Tax Credit.
The answer must be that the Universal Tax system is going to include changes that are even more ridiculous than the Child Benefit changes.
Taken together with the pointless reduction of the higher tax rate from 50% to 45%, I have lost faith with the Conservative end of the Coalition. At least the LibDems introduced a sensible higher basic allowance.
@ermine
You make a fair point but it is sadly irrelevant in my opinion.
Lets assume the two people on 27k put their kids into nursery so they both have time to work. My wife works more than 40 hours a week taking care of the kids. So your argument that we deserve to be taxed more because we dont work hard doesnt hold water.
Or secondly assume i get to my 55k by doing 2 jobs and working 80 hours a week. Does my tax treatment change?
As I said this is a continuation of current government policy penalisingsingle earner families.
@JG though we’re probably starting to tread on dangerous ground I would say that the bottom line for me is that you both elected to have children. They will add joy and light to your life, things that are worth doing are usually associated with some sacrifices in other areas. I get to retire earlier than you probably, you get the rewards of seeing your line ocntinue.
When I asked myself the same question ‘do we want children’ some time ago economics weighed in and I came to the sad conclusion I couldn’t afford to do it and maintain the lifestyle I wished to keep, and so I am child-free. That probably was all to the good as that relationship failed since I am old-fashioned enough to believe that a child needs both parents but that’s a different story.
However, I paid about the same amount of tax as you did, without any compensation from the Government to help me pursue my other choices in life. Which is okay, I don’t actually expect other people to help me with my life choices. In return, I’d prefer not to do that for your good self, though I am not averse to assisting some people on lower incomes.
I agree with your more general point on apparent fairness, that it should be a household income of 50k that is targeted rather than an individual’s income. I never understood why I was assisting my work colleagues to have children through universal child benefit, and I don’t understand why I am assisting you. The policy doesn’t penalise single earner families, what it does is unfairly favour double earner families, and that is the anomaly I hope to see addressed one day.
FWIW you earn more than twice the average UK household income. I’m not against assisting some families to have up to two children, but I am against assisting those who have an above average household income. Those two people you cited working 80 hours a week between them are paying for your family to be able to choose to have one earner. They don’t have that choice. Perhaps that makes things clearer 😉
@ermine
I think we are saying the same thing.
I would gladly give up all universal benefits for a bit of fairness for single earner families and if you look at the combination of withdrawn benefits plus extra taxes my marginal tax rate is incredible which is basically the point of this article.
Anyway have yourself a nice day and you should try the kids they are great.
@JG It’s part of the human condition to be more sensitive to percieved unfairness towards oneself. In your case the two earners ‘twixt household income of £50k to £100k, and in my case between myself and and the well-off with children.
I was actually reasonably happy with my lot having gotten used to sponsoring my colleagues’ kids via the tax system. However, it’s just as unjust as your case is vis-a-vis the dual income households but in a different way.
What is making me, and a lot of others by the looks of it, spit bricks is the grouching from those that have benefited from an injustice of the tax system but no longer doing so, pointing fingers at others who continue to benefit from the injustice because the tax system is too dumb to fix that too at this stage. It ain’t pretty. Gore Vidal had an insight into that sort of thinking when he said it is not enough to win. Others must fail I am sure the taxman will be coming for the £50k + £50k people in future, probably when Universal Credit is brought in.
Some of the current issues are inherent in the deep injustices of being taxed individually but getting benefits assessed as a household. In the past people were taxed by household, and perhaps the Tories returning to a taxation by household in terms of a married couples’ tax allowance or at least permitting tax allowances to be pooled would address this. You would lose CTB but would gain about the same from having a 16K tax allowance. You would probably think this unfair in that SINKY couples would also benefit but they are rarer in modern society.
In the interim you might care to open a SIPP to retain your CTB entitlement and use some of my taxes to improve your income in old age. 😉
@ermine
Advice gratefully accepted and I hope you have a comfortable retirement as my kids are paying your ‘pay as you go’ state pension – assuming there still is one of course!
> my kids are paying your ‘pay as you go’ state pension
aha, that hoary old chestnut, eh? You kindly had kids for the good of society 😉
I am over 50, but I would be extremely surprised if the State Pension were available to me, because I expect it to be means tested and denied, despite my 30 years of NI stamps. I observe the 16k savings limit of Universal Credit, and accept that life isn’t fair and s**t happens sometimes. I see which way the wind is blowing, and it’s away from universal benefits. Your CB conundrum is one of the straws in the wind.
I believe in taking responsibility for my life decisions, so I can live with the loss. These things happen. The SP is not a huge part of my retirement planning. Never rely on Government benefits for your lifestyle. Oh and as for the chestnut about your kids and my (and more to the point your state pension? If your kids have any brains they’ll have left Blighty by then, seeking their fortunes in the new worlds of Asia. And good luck to them, I say.
The child benefit wheeze was the final straw for me. Not that I couldn’t see their point, but the ham fisted manner in which the idiots Cameron and Osbourne attempted to deploy it wound me up.
I decided I would never pay higher rate tax again and for the last two years I haven’t – 33-35K a year gross into my pension – f*ck ’em. Investments in ISA, capital gains instead of dividends etc.
I’m obviously going to draw some ire from the raging socialists (except I’m more left wing than most of them, all benefits should be means tested!)
I also overtly doing what most of the civil service/MP’s etc are covertly doing. For instance if the rules round pensions were to change then all state employees would have to have their gold plated pensions properly valued, none of them from nurses up would qualify for child benefit if it ever happened (so I’m safe enough). Most people in government employ are unaware of the stonking deal they get (and the value it would attract…)
@JayGee, like many single income earners what you’ve conveniently forgotten is that your partner pays a nice 0% tax rate on the 40 hours of work a week she does.
If the two of you weren’t married and instead you were employing her to do those 40 hours of childcare, housework etc. then not only would you be paying VAT on that but she’d be paying NI/income tax etc. Chances are the tax you save is so great that without it you wouldn’t actually be able to afford to employ her to do the work in the first place!
I don’t begrudge single earner couples their enormous tax saving but I do begrudge them then whinging about how tough their lot is!
@Andrew. That’s right, it’s much better for their child’s health if his partner goes to work, but gets an allowance to fund someone else raising their children. Evidence does indeed suggest that kids raised by others are much better adjusted with a lower burden on the state in future…oh wait.
Also, with the “children is a choice” argument, surely childbirth should also be private (non NHS)? And while we’re at it, why should I may for the health treatment of overweight people, smokers, ex smokers, drivers involved in RTA’S (their choice to drive).
Don’t you all see that the divide and rule politics of the condems is pitching the poor against the slightly less poor? At this rate, the uk will look like a republican USA with shitty weather. Somehow we’re forgetting that we wanted a better society.
Btw, if this is really about reducing debt, go after tax evasion and extreme tax avoidance.
@Bob. I think you’re trying to misinterpret me on purpose there/set up a straw man.
My point isn’t about the rights and wrongs of choosing to work or stay at home to look after the kids. I was pointing out a failure to understand the economics of the situation. You obviously missed the bit in my previous post where I said I didn’t begrudge people who worked at home being untaxed. I just begrudge the Daily Mail style victim mentality of always seeing the worst in your situation and the best in everyone elses.
I fear it’s now too late since your reply but I’d also be interested in the research/evidence which you imply shows that child whose parents use childcare are “less well adjusted” or a “burden on the state”. The research I’ve seen tends to imply that when you control for parental wealth, education, socio-economic group etc. that there is no clear cut answer to whether using childcare changes life outcomes. I think there is even some research that suggests that high quality childcare can benefit children at certain stages of their development.
Can someone help with a more technical question? It is best illustrated with an example.
Say I earn £60k via self employment and want to retain my child benefit (my partner is below the threshold). If I pay £10k into my SIPP will that reduce my income enough? The reason I ask is, as I understand it: I pay £10k of my self-employment income (i.e. untaxed money… at the moment) into my SIPP for this tax year, that makes the balance of my SIPP £12K (The SIPP provider claims a tax refund at the basic rate (20%) on behalf of the customer). As I am a higher rate tax payer I then have to reclaim the additional tax refund (~2K) via my tax return. What happens next, is it:
1) this 2K comes back to me and counts as earnings (i.e. increasing my salary to 52K – hence loosing some child benefit) or
2) do they reduce the tax I pay (keeping my income £50k and SIPP balance £12k but with a lower income tax bill) or
3) do HMRC somehow pay it into my SIPP (hence keeping my earnings at £50k and my SIPP balance at ~£14k)?
This may be really obvious, but any help would be greatly appreciated.
@DJ try https://www.gov.uk/child-benefit-tax-calculator/main
@rhinestone Thanks for the link, that is really useful.
Yes, i think the end result is similar – paying £4,000 into your pension from your net income becomes £5,000 with the tax relief top-up. And your basic rate band (where you pay tax at 20%) is expanded by £5,000, which covers your bonus.
kind regards
Abri
Quite funny reading back through the old messages from 2012, particularly the discussion on single income families and how unfair it is.
Putting that aside, I think we can agree that successive governments have decided to set the 50K threshold in stone (and the 100K for personal allowance a few years before this).
What’s interesting is we’re now 10 years on from this, yet the 50K threshold hasn’t changed. Gee, that’s a serious fiscal drag bringing people into ridiculously large tax percentages. That is to say a lot more people have been caught in this net (as well as the 100K). Is this by design? I suspect people are not aware. For example I was talking with a school teacher who was just under the threshold with 3 kids and she didn’t know. Fortunately she pays into the teacher’s pension 10% (to get career average) so she still has headroom before she truly gets over the 50K threshold. Just an example of fiscal drag broadening its net. A quick look at inflation calculators show nearly 28% inflation in that 10 years (or 50K then is 64K now)
Inflation (and consequent wage inflation) being what it is now, my family are going to hit this issue soon. Do Share purchase scheme contributions reduce the pay that’s taken into account for the purposes of Child Benefit tax charge in the same way that pension contributions d
Tax payers are getting a good deal on the CB payments that they fund. The amounts paid don’t touch the sides of the costs that parents incur. If you intend to live past retirement age then you are dependent on the next generation to provide the services you need. Yes you may pay for those services, but you’re not paying for the massive positive externality of that generation existing to provide those services. You could alternatively argue for immigration and for sure that would be a better deal again, but that externality still exists regardless, just a bit further away. I make this argument approximately every six months here and it never lands. I’m unsure whether my argument is flawed or that it’s just too painful for the child-less to accept this perspective of them effectively free loading on families
It’s worth noting that other European countries and countries around the world have more generous child payments.
The UK system of pulling the rug on £60k+, 2child benefit cap, and the madness that is tax credits means that you should consider things well in advance and set your finances up accordingly and prepare for change.
For us, we have substantial umsheltered assets that we slowly sold / managed to pay for nursery (£80k) without ever losing child benefit or paying Scotland’s higher rate tax.
The net effect can lead to relative excessive pension savings.
For historical context, although a system of child benefit has existed for many decades, for a long time it was only paid for second and subsequent children. As an only child my mother never received child benefit for me (it was always paid only to mothers). That said, I have a hazy memory that at some point there may have been a tax allowance available to households with any number of children.
@Guy @Ermine. I’m with you. Having children, and how many, is a financial as well as an emotional choice. But yes, Osborne was a bit of a clever-dick disaster.
Useful refresher, though sadly not a lot else I can do other than moan at the pain of self assessment clawback as Pension contributions are already as high as I can bear.
One comment – should the link in the “illicitly avoid” paragraph say Evasion rather than Avoidance in that context of simply not telling HMRC?
Govt1: “Oh no, women (people) aren’t having enough children so the population will crash, what can we do???”
Govt2: “No, we aren’t going to help out with the extra costs of having children, at a point in your life when you don’t earn as much as later in life.”
As a resident of Scotland paying the HICB, I think my marginal rate is a few %points even higher. Oh well, just realised my C2W bike will mitigate this a bit.
One thing I’m not clear on, does the ‘net adjusted income’ that is declared on the tax return include all interest for cash savings? Or only savings above the £500 personal allowance?
Wife and I both earn £50k-£60k. We optimise in a different way to the four you mentioned @TI – by reducing our hours to keep us below £60k enabling us to spend more time with our pre-schooler, while simultaneously saving two days of childcare fees (we each take a different weekday off).
I fully agree with those (like Jeremy Hunt) who believed that the taper should be based on household income, but one can only work with the system they are dealt.
Have been making use of this “trick” for a couple of years now I’ve passed into HICBC territory. Takes a bit of forward planning / spreadsheet forecasting when you have multiple income sources, especially ones that fluctuate, and potential bonus payouts have to be forecast both for timing and value, but it is simple enough to do.
I’ve decided to keep it even simpler this year and instead just sacrifice 20% to pension every month to do the heavy lifting and then if and when bonuses are achieved and I know the timing of the payment, that will impact the treatment I take on it. Waiting until March for one misses compounding anyway and two potentially means you’ve got to keep a large slush fund waiting to pull the trigger on (and less disciplined might not keep it available!!).
Couple of years back I got an 11k bonus award. I calculated if I took it as cash I would end up with around 4k in my pocket, after tax, NI, student loan and HICBC clawback. Sacrificing it to pension made it worth 12k, as my employer gives full NI benefit back on bonus sacrifice. Complete no brainer during accumulation.
Don’t have kids, but have no problem with a universal child benefit. Kids are expensive on an individual level and necessary in aggregate. Society sharing some of the cost makes sense. Occasionally disgusting, and often annoying, other people’s kids are – we all benefit in the end (not least because they are also often extremely entertaining, and very cute). Presumably even little Tarquin’s riding gear etc has VAT slapped on it, etc so what goes around, comes around.
Moving to part-time working is another obvious way of ducking the threshold (that’s what I did when I hit another tax threshold myself) and I wonder if other salary sacrifice eg bike to work would also help you keep below it?
Completely with Rhino here (and this is largely the one area that I’m with Elon Musk too – the falling birth rate is the principal long-term challenge to the western world). I have a shared cost AVC option and C2W that brings me below the threshold. Fiscal drag will make me a very well-off pensioner but pressure the household budget later in the decade, unless I take the tax and HICB hit.
Is a potential unintended (or maybe intended) incentive of the child benefit to have children earlier in life when your income is lower? The opposite of pension contributions… where you tend to get best bang for buck in your highest earning years towards the end of your career… an interesting article might be how to maximise various tax saving schemes across a lifetime (more a theoretical piece than a tax planning piece as obviously life doesn’t work like that in the real world).
@G
I’m hoping one of the tax grabs later this year is to just have VAT on everything.
Dan Neidle was talking other day about £2k kids jackets that were 0% VAT and how it was nonsense, I assume kids horse riding clothes are 0% too.
I claim it, put it in a regular saver and then will probably have to pay it all back, minus the interest. Is there any reason why this isn’t a good idea, as I would have thought this have been another way to reduce that effective tax rate (that i hadn’t considered before).
Such an interesting thread for a 79 years old couple with 3 kids (all married) and 8 grandchildren
How did we do it?
Our kids seem to have continued in the same vein -2 have 3 children and 1 has 2 children
I suppose it’s a question of priorities-certainly for the current “ middle class”-the poor and the very rich of course continue to have their children regardless of their current circumstances financial or otherwise
Both my wife and I wanted kids from the get go and certainly never considered the long term financial implications-no regrets though
Sacrifice is one behaviour that humans can do so we have a social net that we can depend on and appreciate very much especially as we get older and less capable
xxd09