CHILD BENEFIT is a payment that some people may decide to waive due to being affected by the High-Income Child Benefit Tax Charge. Could making pension contributions have an impact on your monthly income – as well as help with retirement planning strategy?
The High-Income Child Benefit Tax Charge is a tax that may result in a person getting a reduced amount of Child Benefit – or none at all due to it being taxed altogether. It may come into effect if a person has an individual income which is more than £50,000, and either of the following applies.
In cases where people will not get any Child Benefit at all due to individual income, they may opt to waive the payment altogether so they don’t need to pay the tax.
“If adjusted income is consistently above £60,000 this is possibly the best option,” said Kay Ingram, a Chartered Financial Planner and Director of Public Policy at LEBC Group.
However, it may be that there is another option which people in this situation consider
Exclusively sharing her insight with Express.co.uk on the matter, Ms. Ingram detailed a way in which a person may be able to receive the payment without being subject to the charge again, while also saving for retirement.
The Chartered Financial Planner said: “Where the individual also wants to save for retirement making pension savings can reduce adjusted income and enable the Child Benefit to be paid tax-free again. Charitable donations can also achieve the same result.”
Ms. Ingram was speaking ahead of the Self Assessment Tax Return deadline, which took place yesterday.
She said: “There are other good reasons to complete a tax return in order to claim other allowances which may go unclaimed otherwise.
“Those who are higher rate taxpayers (income over £50,000) and are paying into pensions from their bank account or via a workplace scheme on the relief at source basis, may have a claim for additional rate tax relief.
“These schemes automatically give relief at 20 percent, but 40 percent and 45 percent of taxpayers can claim the additional 20 percent or 25 percent back via a self -assessment return.
“Completing the tax return can result in a refund of relief if this is not already adjusted via the individual’s tax code.
“Claims for up to four earlier years can be made.”
Ms. Ingram also pointed out that those who opt to waive Child Benefit will need to be aware of how doing so could have an impact on their state pension – as well as explaining how those affected could overcome this issue
She said: “Couples where one is not paying National Insurance via employment or self-employment, with a first child born after January 1, 2013, need to be aware that in waiving Child Benefit the low earning parent may lose credits for their state pension.
“These are currently worth £250 per year of the state pension.
“Claims are made by completing form CH2 to claim child benefit while waiving payment of it.
“This must be completed by the lower earner or the credits are wasted.
“If income has fallen below the £60,000 threshold due to a change in employment or loss of fluctuating bonuses, overtime, etc, the taxpayer should consider reclaiming the benefit by completing form CH2.”