Child benefit – who’s the daddy?

A drawing of a hanging t-shirt with the writing about the pension


MoneyPlus Features Team

20th March 2013 at 4:17pm

Paying into your pension plan may do more than provide for your retirement – it could also see you retain your child benefit.

So, how does that work exactly?

Well, your pension payments are deducted from the income used to test your family’s eligibility for child benefit.

Child benefit is reclaimed by a tax charge where at least one parent has income in excess of £50,000.

This year

An estimated 1 million families could lose out on their child benefit payments this year.

An estimated 1 million families could lose out on their child benefit payments this year.

If you have income of £60,000, paying £8,000 into your pension could save a family with two children £1,752 each year in child benefit.

Tax relief

Your payment initially will receive tax relief at 20% making the amount that goes into your pension worth £10,000.

This will bring your income for child benefit purposes back down to the £50,000 limit and escape the charge.

And as a higher rate taxpayer you’ll be able to claim an additional 20% tax relief via your self-assessment return.

So the £10,000 sitting in your pension plan has cost just £4,248 once tax relief and child benefit savings kick in.

It is possible to request that your child benefit payments stop if you are not in position to avoid the charge.

This would mean that you may not need to complete a self-assessment return.

NI contributions

But if one parent is not working they could be missing out on National Insurance contributions which could reduce their future entitlement to state benefits.

That’s because if child benefit is claimed for a child under 12, there’s an additional year’s NI contribution provided for you.  This counts towards the 35 years needed to claim the full flat rate State Pension from 2016.

For more information on child benefit changes visit the HMRC website.

Every person’s circumstances will be different and require advice. Standard Life accepts no responsibility for advice that may be formulated on the basis of this information.

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