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 [1] 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At £80,000 and above the benefit has been fully withdrawn.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 [2] 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 [3]:
- £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 [4] 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 [5] doesn’t count towards the £60,000 threshold.
After years of frozen tax brackets and all the dividend [6] and capital gain allowance [7] 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 [8] 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 [9]) 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 [10]).
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 [11] 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 [12] 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 [10]. 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 [13] 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 [14]. 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 [15] the benefits system is bloated, and that we’d do better tackling income inequality [16] 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 [17] 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 [18] 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 [19]
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 [20].
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 [21].
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 [22].
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… [↩ [27]]