How pension contributions can help you regain your Child Benefit and Personal Allowance back
Is your salary having an impact on your child benefit payment or are you losing part or all of your Personal Allowance? Currently child benefit is worth £25.60 a week for the eldest or only child and £16.95 a week for younger children. With effect from April 2025 benefits will increase by 1.7% and the weekly rate for the first child will rise to £26.05 and £17.25 for additional children.
You can find out how much child benefit you may be entitled to currently by using the governments child benefit calculator.
Child Benefit tax calculator - GOV.UK
What is the High-Income Child Benefit Charge (HICBC) and how much money can I earn before I start to lose it?
The amount you can earn has increased from £50,000 to £60,000 so if you and your partner each earn less than £60,000 a year, you can claim for the full amount of child benefit. However, if either of you earn more than this then you will have to pay some or all of the benefit back in the form of the high-income child benefit charge (HICBC). This can be problematic for the higher earner as for every £200 you earn over £60,000 you will have to pay back 1% of your child benefit. This means that someone earning £70,000 would need to pay back 50% of their benefit and at £80,000 the charge means that the benefit is completely lost. When considering your salary package all employee benefits need to be taken into consideration such as bonuses or private medical insurance.
https://www.gov.uk/child-benefit-tax-charge
Higher salaries and the loss of Personal Allowance
The amount of income you do not have to pay tax on is your Personal Allowance and the standard amount is currently £12,570. Once your salary reaches £100,000 your personal allowance is reduced, so for every £2 your ‘adjusted net income’ is over £100,000, you lose £1 of your tax-free Personal Allowance. Which means that your personal allowance is £0 once your ‘adjusted net income’ is £125,140 or above.
You can reclaim your full Personal Allowance if your income falls below £100,000.
Income Tax rates and Personal Allowances: Income over £100,000 - GOV.UK
What changes can I make to avoid the High-Income Child Benefit Charge and the reduction in my Personal Allowance?
By reducing your taxable income you can keep yourself under the threshold. There are a number of ‘allowable deductions’ which can reduce your taxable income with a view to keeping yourself under the threshold. One example of allowable deductions are pension contributions. Paying more in pension contributions can reduce your taxable income.
Personal Allowances: adjusted net income - GOV.UK
Examples of how pension contributions can reduce the High-Income Child Benefit Charge and also help with reinstating your Personal Allowance:
If your earnings were £65,000 and you made a gross pension contribution of £5,000 (you would pay £4,000 net and claim an additional 20% via your tax return) thereby reducing your adjusted income to £60,000 giving you £2,000 tax back and 25% of your child benefit back!
A salary of £110,000 would reduce your personal allowance from £12,570 to £7,570 a loss of £5,000 allowance. By making a pension contribution of £10,000 (you would pay £8,000 net and claim an additional 20% via your tax return) it would reduce your adjusted income to £100,000. Therefore a pension contribution of £10,000 would only cost £6,000 and give you your £5,000 personal allowance back a benefit worth another £1,000. . . . . . .
Magic!! ✨