PARENTS can avoid losing child benefit payments worth thousands of pounds a year thanks to a loophole – but need to act fast to take advantage of it.
The amount you get from the benefit if you have kids can depend on how much you earn.
1
When your income goes over £50,000 you lose some of the child benefit payment.
And if you earn over £60,000 you have to pay back the whole lot.
Child benefit is worth £21.15 a week for your first child and £14 a week for any additional children and those amounts will rise in April.
For a family with three children that’s around £2,500 a year.
Around 1.6million families are estimated to be affected by this rule, which has caught out thousands of families since it was first introduced in 2013.
But it can be avoided, and you can keep the payments even you earn more than this amount with a clever loophole.
Jenny Holt, a finance expert at Standard Life said: “Contributing to your pension reduces what counts as your income, and could allow you to keep your child benefit and boost your retirement savings at the same time.”
A loophole in the system means that upping your pension contributions will lower the income HMRC takes into account.
Most read in Money
So if you earned £53,000 a year, but paid £3,001 into your retirement fund, you’d drop back below the threshold and keep all the child benefit.
The loophole applies to other salary sacrifice schemes too, such as childcare vouchers, cycle to work schemes or a company car.
But finance experts have previously warned that HMRC will be on the lookout for anything that appears to be a tax dodge, for example, if you work for your own company and pay yourself a reduced wage and higher dividends.
Of course, you should only increase your pension contribution if you can afford to, as it will also reduce your take-home pay.
It’s worth checking if the extra child benefit will make up for it day-to-day so you’re not left short.
You will be better off overall, but the cash you put into your pension will be tied up there until you can access at – currently the age is 55.
If you can afford to do put the money away, then you’ll get a boost to your pension too, on top of keeping child benefit payments.
When you contribute to a pension you get tax relief on top and the money is invested and grows over time, giving you more in your pocket come retirement.
But time’s running out to put money into your pension for this tax year, which ends on April 6.
If you have a pension through your workplace, they may have early deadlines for making extra payments into your pension scheme.
If you miss this deadline, you’ll still be able to do it next year, but you’ll miss out on the child benefit payments for this year.
What is the child benefit high income tax charge?
You won’t be able to get the full amount of child benefit if you earn over £50,000 and you’ll get nothing at all if you earn over £60,000.
The High Income Child Benefit Charge applies if either parent earns over this amount, but not if they both earn just under that, even when the combined income is over the threshold.
You pay back 1% of your child benefit for every £100 of income over this amount.
Once you reach £60,000 of income you have to repay the full amount.
It’s up to parents to notify HMRC if they are liable for the charge and they must file a self-assessment tax return to pay it.
From your self-assessment tax return, HMRC calculates how much you owe them which must either be paid in full, or negotiated to be paid in instalments.
It’s worth claiming child benefit and paying the charge, or applying and choosing not to get the cash, as it includes the National Insurance credits.
These fill gaps in NI contributions when not working, and count towards how much state pension you get in retirement.
Holt said: “Use the government’s child benefit tax calculator to work out if you’re affected by the tax and how.
“You can choose not to take child benefit payments if your earnings are over £60,000, but you should still consider filling in the child benefit claim form.
“This helps you get National Insurance credits, which go towards your State Pension later in life.”
We pay for your stories!
Do you have a story for The Sun Online Money team?
