British families have been issued with a warning (Image: Getty)
Thousands more families across the UK are set to be caught by the high-income child benefit charge by 2030/31. According to a Freedom of Information (FOI) request from NFU Mutual, an additional 54,000 families are estimated to be liable for the charge, bringing the total to 378,000.
The figure will rise year on year as wages increase, with HMRC set to raise an extra £2.57billion over the next six years. Annual revenues are forecast to rise from £373million in the current tax year to £486 million by 2030/31. The Government increased the starting threshold for the charge from £50,000 to £60,000 in April 2024. Although they claimed it would mean around 170,000 households would not have to pay it, more families are now set to be dragged back into the net as incomes rise.
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The high-income child benefit charge is a tax applied to people with an adjusted net income over £60,000 who receive Child Benefit.
It takes back the benefit at a rate of 1% for every £200 over £60,000, with 100% repayment required if income exceeds £80,000.
If they earn over £80,000, then the charge equals the total amount of Child Benefit received. As it is based on the income of the highest earner in a household, critics argue the system is unfair due to two-parent households each earning £60,000 being able to keep the benefit in full, while a single-earner household on just over £60,000 loses some or all of it.
An extra 54,000 families will be dragged back into the net (Image: Getty)
Sean McCann, chartered financial planner at financial advice firm NFU Mutual, said: “If you’re the highest earner in your household with an income of more than £60,000, and you or your partner claims child benefit, you’ll need to pay the child benefit tax charge. For every £200 of income you have over £60,000, you pay back 1% of the child benefit. Once your income reaches £80,000, you repay the full amount.
He added: “You can become subject to the charge if you moved in with someone who is claiming child benefit, even if they’re not your children. The good news is that anything you’ve paid into your pension is knocked off your income before the charge is assessed. If it reduces your income below £60,000, you won’t need to pay the charge.
“Many are still unaware of the need to inform HMRC once their income exceeds £60,000 and pay any child benefit tax charge due. There have been numerous cases where significant arrears have built up over several years, resulting in unexpected five figure tax bills.
“The onus is on the individual with the highest income in the household to pay any child benefit tax due, this can cause issues with couples who don’t normally share details of their earnings with each other.”
Some families are still unaware they could be liable. (Image: Getty)
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Mr McCann advises people to pay more into their pension to mitigate the impact of the charge. He added: “The tax is based on the income of the highest earner in the household, after pension contributions”.
For example, if the top earner in a family with three children had income of £70,000, they could save £3,574 a year in tax by paying £8,000 into their pension. HMRC would add another £2,000 to their £8,000 creating a total pension contribution of £10,000
This takes £10,000 of their earnings out of the 40% tax band (saving £2,000), it also reduces their income to £60,000 meaning the Child benefit tax charge is no longer payable (saving £1,574).
Mr McCann continued: “The child benefit tax is based on your level of income after pension contributions. Reducing your income to £60,000 or below through pension contributions can be a very effective way of dealing with this tax.
“Similarly making donations to charity via Gift aid can also help reduce your income when it comes to assessing whether you’re liable to pay the child benefit tax.’”