Child Benefit has until recently been a universal benefit. given to everyone regardless of personal income. For the first child the payment is £20.50 per week and £13.50 for each additional child. Since January 2013 this changed with the government announcement that if you were a parent with income over £50,000 per annum, you would be required to either forgo child benefit or pay the High Income Child Benefit Charge. Joint income is irrelevant, there could arguable be a joint household income of £98,000 but if one parent earns over £50,000 per annum then they have to pay the charge which is a tax and furthermore you will need to fill out a self assessment form to declare and pay it.
Be aware too, that £50,000 is not just employed income it relates all sources of income added together. So add savings income, rental income, pensions income, dividend income.
So how does the High Income Child Benefit Charge Work ?
1% of Child Benefit is subject to the charge for every £100 or part thereof of income above £50,000.
This is not a reduction in Child Benefit but a tax charge for which you will need to complete a self assessment form.
Lets do the Maths.
A parent of three children under the age of 16 with an income of £54,000 will receive £2,477.80 per annum.
Their income is £4,000 above the threshold or 40 x £100 giving rise to a 40% tax charge on the child benefit.
A tax charge of £991.12
Lets make a pension contribution.
A contribution of £4,000 will bring income down to the threshold and receive tax relief.
Tax relief at source with the pension provider @20% = £800
Further tax relief as a higher rate tax payer 20% 800
Saving on not paying the High Income Child Benefit Charge 991
Total relief on pension contribution 2591
2591 / 4000 x 100% = an effective rate of tax relief of £64.78 %
Plus an enhanced income in retirement and potentially simpler than completion of a self assessment form.
You could also ask your employer to undertake a salary sacrifice exercise, reducing your salary to within the threshold making a pension contribution on your behalf and reducing their National Insurance Contributions in the process. You could also in an extreme move and situation permitting, set up a limited company and pay yourself whatever it takes to keep the child benefit. More charitable solutions would be to voluntarily give up your child benefit to help save the nations welfare bill or make a Gift Aid donation to reduce income.
If you are effected by the High Income Child Benefit Charge get in contact to discuss some solutions.