Rising wages mean more people are becoming subject to the High Income Child Benefit tax Charge (HICBC), with wealth investment group Royal London raising concerns about the growing issue. The £50,000 threshold has not increased since the tax charge was introduced in January 2013 despite soaring inflation.
Prices have particularly increased in recent months, with the current rate of inflation at 10.5 percent.
Clare Moffat, pensions and legal expert at Royal London, said: “This tax charge has caused many problems since its implementation 10 years ago.
“More and more families are being caught by this tax charge as the earnings threshold hasn’t changed since it was introduced.
“If it had increased with inflation then the starting amount would be over £63,000. At a time when costs are high, it can feel like families are being further penalised.”
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The group has warned Britons may be put off claiming Child Benefit because of the tax charge and so miss out on the benefits for a person’s state pension.
Ms Moffat said people can reduce their income and avoid the charge with pension contributions and gift aid donations.
She also commented: “It is quite right that parents who are looking after children get protection for their state pension record if they are out of paid work.
“Increasingly parents aren’t applying for Child Benefit but they need to make sure that they have still officially ‘claimed’ Child Benefit even if they have chosen not to receive payments. This means that they will still receive the credits.
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“But this protection only works if the non-working parent claims Child Benefit. Missing out could mean that many thousands of parents are penalised in retirement.”
The group said it’s “important” to think about the state pension in relation to Child Benefit. The firm said families often decide not to claim Child Benefit because of the tax charge but this can have implications for state pension if there is a non-working parent.
Claimants with children under 12 may be able to get National Insurance credits (NI) to cover any gaps where they are not paying contributions while caring for the child.
A year of NI credits covers the same amount of contributions as would be paid if a person was working and paying into the system, which goes towards their state pension.
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How much is Child Benefit?
Child Benefit is available to those who have children aged under 16 or under 20 if they are in education or training.
Claimants get £21.80 a week for their eldest or only child and £14.45 for each additional child but a person may have to pay part of this back depending on their earnings.
This applies if a claimant or a claimant’s partner earns £50,000 a year or more, or if a person earns more than this and they contribute at least an equal amount to a child’s upkeep, who they live with, while another person in the home claims Child Benefit.
If a person and their partner both earn more than £50,000, the person with the highest income will have to pay the charge.
Once a person’s earnings reach £60,000, they have to pay back all their Child Benefit payments.
To pay the charge, a person has to register for Self Assessment and fill out a Self Assessment tax return.
How much is the full new state pension?
A person typically needs 35 years of National Insurance contributions to claim the new full state pension, of £185.15 a week.
Missing just one year of contributions would mean a person loses out on around £275 a year in their state pension payments, or £5,500 over a typical 22 year retirement.
The state pension is also set to increase by 10.1 percent in April meaning those who have gaps in their National Insurance record will miss out on even more money during their retirement.
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