Parents earning more than £50,000 may be able to continuing claiming the full child benefit entitlement, due to a little publicised clause which permits pension contributions to be excluded.
Under changes introduced in January, couples in which one partner earns more than £50,000 have to pay back an increasing proportion of their child benefits payments via additional tax. Couples earning more than £60,000 have to pay back the entirety of their child benefit payments.
However, pension contributions can be deducted under the current rules. Therefore couples in which one partner earns a few thousand pounds above £50,000 per annum may have declarable earnings below that amount, making them entitled to keep all their child benefit payments.
The Citizens Advice Bureau notes:
“You may be able to avoid having to pay the extra tax and still receive child benefit by reducing your taxable income. For example, you could do this by paying more into your pension. Pension contributions are taken out of your income before you pay tax. This could therefore reduce the amount of income on which you have to pay tax to below £50,000.”
There are other possible methods of reducing declarable income below the threshold – for example, buying an increased holiday entitlement from your employer via a ‘salary sacrifice’, or by increasing your charitable donations and taking advantage of gift aid.