Tax Year End Planning Ahead of Budget Recover Child Benefit

We suggested a few weeks ago that you need to start your tax year end planning early given the Chancellor’s needs to spend on the NHS, Social Care and Defence, meaning ever high taxation and restricting our tax breaks and allowances.

See Early Tax Year End Planning

There is so much speculation for the Budget in changing gifting rules for inheritance taxes, putting a cap on lifetime gifts, capping pension tax relief, reducing the pensions annual allowance.  Act before there are any changes to IHT and gifting (if any).

Losing Child Benefit under High Income Child Benefit Charge (HICBC)

You may or may not be aware but since 2013/2014, if you adjusted income is above a certain level and you/your family receive child benefit, you may have to refund some or all it (i.e., you are not entitled to it) under the HICBC and may have to refund any payments to you via self assessment.

Adjusted Net Income is your taxable income before any personal allowance is deducted (think of this is as your usual gross income before tax).

• Less donations to charity and crucially, your gross pension contributions.

2013/14 to 2023/24 – Adjusted Income Test

• Below £50,000 – you are entitled to full child benefit.
• For every £100 above £50,000, child benefit is reduced by 1%.
• £60,000 and above – you are not entitled to child benefit and this will be paid back via self assessment and the HICBC.

2024/25 to 2025/26 – Adjusted Income Test

• Below £60,000 – you are entitled to full child benefit.
• For every £200 above £60,000, child benefit is reduced by 1%.
• £80,000 and above – you are not entitled to child benefit and this will be paid back via self assessment and the HICBC.

Earn Above £60,000?

You already know from the above, gross pension contributions reduce your adjusted income.  If you earn more than £60,000, make a pension contribution to reduce your adjusted income back to below £60,000 and thereby recover your Child Benefit.

E.g., You have two children, and your gross income is £70,000, without action, you will lose 50% of your child benefit (for every £200 above £60,000 = 1% reduction)..

• Child benefit for two children in 2025/26 is £26.05 per week for an eldest or only child and £17.25 per week for each additional child.  For two children that is £2,251.60 pa.  50% reduction/refund under HICBC = £1,125.80.
• Make a net pension contribution of £8,000.  The pension provider will add 20% basic rate tax relief at source to make the pension contribution up to gross £10,000.
• Adjusted Income is now £70,000 less £10,000 = £60,000 meaning there is no longer a HICBC.
• As a higher rate taxpayer, you are also entitled to a further £2,000 in tax relief (you have received 20% at source and the further 20% is due via self assessment.
• You have recovered £1,125.80 Child Benefit, Received a £2,000 tax refund in addition to £2,000 tax relief at source.
• By making a net pension contribution of £8,000, you have received the equivalent in tax relief of 51.258% (when you combine £4,000 in tax relief + £1,125.80 in recovered child benefit).

It clearly possible that the Chancellor may cap pension contributions, change tax relief or even change HICBC levels in the Autumn Budget.  Start your tax year end planning early.

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