Parents warned on deadline for high-income child benefit charge

Saturday 5 October marks the deadline for those hit by the high-income child benefit charge (HICBC) in 2018-19 tax year to notify HMRC, so that they can receive a tax code adjustment

High earning parents are being urged to take action to eliminate or reduce the tax payable through pension or charitable contributions.

Child benefit is paid tax-free, unless the parent, or other adult living with the parent, has taxable income of more than £50,099 a year.

Those with income over this figure are required to pay 1% income tax on the child benefit for each £100 of income above this, so that its value is eroded to nil, once taxable income of one of the adults exceeds £60,000.

Since 2013, when the high-income child benefit charge was introduced, its complexity has resulted in some parents waiving their right to payments, with a typical two child family losing £1,788.80 per year. For each additional child the benefit is £712.40 per year. 

Financial planners LEBC Group says that many parents earning between £50,100 and £60,000, when the benefit gets taxed, could reinstate their claim to all or some of the benefit by increasing their retirement savings, or by making charitable donations, both of which have the effect of reducing taxable income.

Kay Ingram, director of public policy at LEBC, said: ‘Trying to save for your future, while bringing up a family, may seem hard to achieve but there are circumstances where making pension savings can increase state support for the family.’

Impact on state pension payments

There is also the risk of losing state pension payments due to the little-known side effect of waiving payment of the child benefit, which is the potential loss of state pension for a parent of children born after 2013, who is a full- time carer.  Not claiming child benefit means a loss of credits for their state pension.

‘With each year’s credit worth £250 per annum of state pension, that is a serious concern and impacts women disproportionately widening the gender pension gap,’ Ingram said.

State pension credits can be restored by completing a CH2 form available from the Department for Work and Pensions website. To get the state pension credits the claim for child benefit is made on CH2 but then the parent can waive payment of it. It is also important that the claim is made in the name of the non- earning parent or the credits will be wasted. It can only be backdated three months.

HMRC guide to high income child benefit charge

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