The tax charge levied on higher earners in receipt of child benefit has come in for a fair bit of criticism since it was introduced six years ago.

    The high income child benefit charge, to give it its proper name, kicks in where child benefit is being paid and the recipient or their partner has an annual income of over £50,000.

    But with some clever tax planning, there are ways to sidestep this charge and retain the full level of child benefit.

    First, a bit of background on how child benefit and the high income child benefit charge work.

    Child benefit is a universal benefit which has been means-tested since 2013.

    For those with an adjusted net income of more than £50,000, the tax charge will be applied at a rate of 1 per cent of the total benefit for every £100 of income over the £50,000 threshold. Where adjusted net income is more than £60,000, the child benefit is fully taxed.

    Since its introduction, the tax charge has been criticised on a number of ‘fairness’ fronts.

    For starters, the income threshold has been frozen at £50,000 for more than six years. It’s possible for a couple to earn, say, £50,000 each and fully retain child benefit, while another couple where an individual earns £60,000 loses the benefit completely.

    An increasing number of families are losing out on child benefit, and this sense of unfairness may increase with the next tax year.

    In 2019/20, the higher rate threshold for income tax will increase to £50,000 for non-Scottish taxpayers. If this rises further, this will mean that an increasing number of families, despite not having a higher rate taxpayer, will pay the charge and lose some child benefit.

    However, as mentioned, it is possible with tax planning to fully retain child benefit.

    One clear way to mitigate the tax charge is by taking the excess income over £50,000 and use this to make an additional personal pension contribution.

    Taxable income could also be reduced or reshaped by using alternative products such as investment bonds.

    Where an individual doesn’t have the means to fund a pension contribution or other planning, intergenerational planning can also play a role here.

    A relative, perhaps a parent, may be in a position to make a pension contribution on the affected individual’s behalf, particularly where the parent’s estate will suffer inheritance tax (IHT).

    This can result in impressive tax savings. Not only is the tax charge on child benefit mitigated, but the individual receives pension tax relief at their highest rate, and the relative benefits from the IHT savings on the gifted pension contribution.

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