PARENTS can avoid missing out on child benefit payments worth thousands of pounds a year thanks to a loophole.
The amount you get from the benefit depends on how much you earn.
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When your income goes over the £50,000 threshold you lose some of it and if you earn over £60,000 you have to pay it all back.
This is through what is known as the high income child benefit charge.
Child benefit is worth £21.80 a week for your first child and £14.45 a week for any additional children.
For a family with three children that’s around £2,600 a year.
And these rates are set to rise by 10.1% from April.
The high income child benefit charge has caught thousands of families out before, but you can avoid being stung through a clever loophole.
Laura Suter, head of personal finance at investment company AJ Bell, explained you can stop yourself from breaching the £50,000 income threshold by adding more to your workplace pension.
She said: “For the child benefit threshold the taxman considers your salary after pension contributions, which means that if you think you’re going to tip over the £50,000 mark you can put a bit more in your pension so that you don’t lose your entitlement to child benefit.
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“For those who have just gone over the threshold it means that a potentially small contribution to your pension could save you a lot of money, particularly if you’re claiming child benefit for multiple children.”
The loophole doesn’t just stop you from going over the £50,000 threshold, but the more you add to your workplace pension, the more your employer could match it.
Laura continued: “Another bonus is that many employers match pension contributions, so if you’ve not already exhausted that you’ll get an extra boost to your pension pot that’s effectively free money.
“On top of that, you’ll get tax relief, giving another bump to your pot.”
What is the high income child benefit charge?
Child benefit is given to families bringing up a child under 16 or under 20 if they’re in “approved” education or training.
There’s no limit to how many children you can claim for.
The benefit is worth £21.80 a week for your eldest or only child, then £14.45 per child for any additional children.
However, if you or your partner individually earn over £50,000 you have to start paying back some of your child benefit.
If your income is between £50,000 and £60,000 the charge is 1% of your child benefit for every £100 between those two figures.
If your income goes over £60,000 all your child benefit is taken away.
This means couples can have a combined income of up to £100,000 without having their child benefit deducted.
The benefit amount can be passed on to family members who look after your children.
But that parent has to be claiming child benefit already.
If your income is over the threshold, you can choose to still get payments and pay any tax charges to HMRC at the end of each tax year.
Or, you can opt out of getting payments and not pay the tax charge.
Parents have to notify HMRC if they are liable for the charge and they must file a self-assessment tax return to pay it.
Charity Turn2Us suggests using the government’s child benefit tax calculator to see how you could be affected by the high income tax charge.
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