The vast majority of Britons are unaware parents earning over £50,000 have to start repaying child benefit, according to new research from financial advisers NFU Mutual. Some 84 percent of respondents to the nationwide research were unaware of the High Income Child Benefit Tax, despite it being in place since 2013.
Those who earn more than £60,000 will have to repay their Child Benefit in full. Awareness of the tax was low in all age groups and all social groups.
It’s estimated 1.6 million families, which is more than one in five, will be affected by the tax in 2022/23.
Sean McCann, Chartered Financial Planner at NFU Mutual, believes this lack of awareness around the issue could lead to more Britons being hit unexpectedly caught by the tax.
He said: “These figures confirm that High Income Child Benefit Tax often comes as a shock to many people.
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Some 58 percent of respondents thought it was fair compared to 42 percent who thought it was not.
The older people get, the more likely they are to think it’s a fair tax, based on the research.
Two thirds (67 percent) of over 65s think it’s fair compared to just 37 percent of 18-24 year olds.
Mr McCann added: “The £50,000 threshold for paying the tax has been frozen at that level since it was first introduced in 2013.
“A tax that was initially designed to be paid by those on a ‘high income’ is now hitting some basic rate taxpayers which many view as unfair.
“The fact that a single earner in a household with income of £60,000 would need to repay all their child benefit, while a separate household with two earners each earning £50,000 would keep all theirs is one of the reasons it’s viewed by some as an unfair tax.”
Mr McCann suggested one possible solution for people who are approaching the £50,000 or £60,000 limit but want to keep some or all of their child benefit.
He said: “One way to save your family money if your income is near those thresholds is to pay more into your pension.
“This reduces your taxable income and therefore can reduce how much child benefit you have to pay back, while also building up a tax-efficient pot for retirement.”
A HMRC spokesperson said: “We use a wide array of channels to reach those customers who are eligible for Child Benefit.
“Information on the High Income Child Benefit Charge (HICBC) is included in packs given to new parents explaining how to claim Child Benefit, and the front page of the application form includes a prominent message about HICBC.
“Each year we write to parents reminding them that they may need to pay the HICBC and to register for Self Assessment. We also include a flyer with Child Benefit award letters reminding parents what to do if their income increases over £50,000.
“Our communications with new parents explain that customers liable to pay the HICBC have the option to opt out of receiving Child Benefit payments, whilst continuing to receive non-monetary benefits, such as National Insurance credits.”
