Getting your child benefit back – and avoiding the tax charge

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Kirsty Kerr

March 15, 2024

3 mins read

If you’re a parent and a high earner, paying into your pension could do more for you than just help to fund your future. Find out how it could help you get your child benefit back too.

Child benefit – how it works

Child benefit is the financial support you get from the government to help with the cost of raising children. Anyone with children under 16 (or under 20 if they’re still in education or training) can get it. Usually, you’ll get £24 a week for your eldest child and £15.90 a week for every additional child, but it will be going up to £25.60 and £16.95 respectively in the 2024/25 tax year. So, for example, if you’ve got two children, it’s worth over £2,000 a year.

Unless you’re a higher earner

Currently, if you or your partner earn over £50,000 a year then there’s a catch. You’ll need to pay a tax charge that effectively reduces the amount of child benefit you get. It reduces by 1% for every £100 you earn over £50,000. And once you earn over £60,000, the tax charge you pay will cancel out the child benefit completely, so you’ll get nothing at all. 

You can use the government’s child benefit tax calculator to find out how much child benefit you could get in a year, and the amount you’d pay as the tax charge.

Of course, you could choose to opt out of getting child benefit completely and avoid the tax charge. But there could be an easy way to keep it.

How your pension could help you keep your child benefit

Here’s where the pension connection comes in. The money you pay into your pension plan can reduce your ‘taxable income’, which is the amount that the government measure your child benefit against. So, if paying into your pension could take your taxable income below the £50,000 threshold, you could get your child benefit back. 

Let’s say you earn £55,000 a year and you pay £5,000 into your pension. It’ll reduce your taxable income to £50,000 and would mean you’d still get your child benefit in full.

Plus, the £5,000 paid into your pension will end up back in your pocket eventually, and it’ll make the most of your tax benefits too.

Child benefit changes from the Spring Budget

In the 2024 Spring Budget, the Chancellor announced some changes to child benefit. From 6 April 2024, the amount you can earn before your child benefit starts to reduce will go from £50,000 to £60,000, and the amount you can earn before you get no child benefit at all will go from £60,000 to £80,000.

He also confirmed that, in the future, the government is planning to change the system so the amount of child benefit you get will depend on your income as a household, rather than an individual. This will make the system a lot fairer, but it won’t be in place until April 2026 at the earliest.

Understanding your pension’s tax benefits

You get tax relief on the payments you make into your pension plan, making it one of the most tax-efficient ways to save for your future.

The amount of tax relief you get will depend on the rate of income tax you pay. A basic-rate taxpayer will get a 20% boost on their pension payments, a higher-rate taxpayer gets 40% and an additional-rate taxpayer gets 45%. Meaning paying £100 into a pension will only cost a basic-rate taxpayer £80 – and it would cost a higher or additional-rate taxpayer even less.

Keep in mind how you get pension tax relief will depend on the type of pension plan you have, and tax bands can be different depending on where you live in the UK.

Time for a top up?

Giving your pension a boost before the end of the tax year is a good way to make the most of your pension’s tax benefits. You’ve only got until 5 April, so it’s the perfect time to pay into your plan. 

You can top up your pension or change your current payments easily online, or on our app.

The information here is based on our understanding in March 2024 and shouldn’t be taken as financial advice.

A pension is an investment and its value can go down as well as up and may be worth less than was paid in.

Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.

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