- Tax Saving
Many parents in the UK maybe heading towards a situation where their future state pension income may be compromised by a considerable amount. The reason behind this loss can be attributed to Child Benefit Scheme which serves as an aid to parents for upbringing their child.
What is Child Benefit?
The Ministry of UK had introduced child benefit program where the government pays £21.15 per week for the first child and £14 a week for subsequent children. The rate is applicable for the year 2021-22. The facility is available to any person who has a responsibility of bringing up a child. However, the couple is required to register under this facility in order to avail the benefit.
How is Child Benefit affecting my National State Pension?
For people who are availing child benefit facility, National Insurance (NI) credits become unapplicable, as a result of this, one of the partners ends up losing almost £260 in a year. From the practical perspective, it will take a couple atleast 4 years to raise their kid, this means that they would be losing at least credit worth £1000. When computed for over the years, it would cost them around 1/35th of their full pension on a weekly basis.
Is there any way of reversal?
Yes, a couple can fix it by letting the right parent take care of state pensions. This means that parent with more stable income takes control of NI contributions. The parent who has lesser income should be availing the child benefit. This action can be taken with help from Child Benefit Officer who would guide you in the process. The required form is CF411A.
For claims that dates back before 2010, Form C411 is required.
How Child Benefit can impact to pay ‘High Income Child Benefit Tax Charge’.
- If your or your partner’s individual income is over £50,000, still you could continue with Child benefit but you may be taxed on the benefit known as High Income Child Benefit Tax charge.
- In case both you and your partner’s income are over £50,000, then person whose income is higher is responsible for paying the tax charge, should fill in a Self-Assessment tax return each tax year and pay what you owe.
How much to pay:
Please check Child Benefit tax calculator
You will have to pay back 1% of your family’s Child Benefit for every extra £100 you earn over £50,000 each year and once you earn £60,000 or over, you lose all your benefit to pay back as tax.
So,it may be wiser to opt-out. You can choose whether to keep getting benefit or ask to stop so that not pay high tax charge, that is calculated based on adjusted net income of higher earner.
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