Earning Over £60,000? You Might Need to Think About Child Benefit

If you or your partner claim Child Benefit and one of you earns over £60,000, you may be liable to the High Income Child Benefit Charge (HICBC).

Like the toddlers dinner in the picture above, it’s a bit of a mouthful, but it’s important to know how it works and how you might reduce the impact.

In short here’s how it works:

You start to become liable to the charge if your income is over £60,000*.
Once you earn over £80,000* you will have to pay the charge in full.
For every £200 you earn over £60,000*, you’ll repay 1% of the Child Benefit you’ve received.
So, by £80,000*, you’ll give it all back (£20,000/ £200 = 100%)

To work out if your income is over the threshold, you’ll need to work out your ‘adjusted net income’, essentially this is your total taxable income.

What Should You Consider?

Pension Contributions - Making extra pension contributions can reduce your income for this charge, meaning you keep more of your Child Benefit and increase your retirement savings.
Registering for Child Benefit - Even if you don’t claim the payments because you’d have to repay them, still register. It can provide you with National Insurance credits, and this may help with your entitlement to the State Pension. This is especially relevant where one partner isn’t working.
Charitable Gifting – Gifts to charity can help reduce your taxable income in the same way pension contributions do.
How are Your Assets Held – You should look at how any income producing assets are held to ensure that any income being received is paid to the lower tax paying spouse or civil partner.

Why It Matters

This often catches people out, and especially when bonuses or pay rises take people above the threshold.

It’s one of those areas where a bit of planning can save you tax and make sure you’re not missing out on future pension benefits. If this sounds like something that might affect you or you’re unsure, feel free to get in touch.

* To be clear, when income is referred to above this is referring to what HMRC call ‘your adjusted net income’. This is your total taxable income, and includes interest from savings and dividends.

They key thing here is to remember it is your taxable income, and pension contributions you already make may reduce this.

Levels and bases of, and reliefs from, taxation are subject to change and their value will depend upon personal circumstances. Taxation and pension legislation may change in the future.

This article is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.