Getting out of the child benefit tax trap

If a family receives child benefit and the person it’s paid to or their partner has adjusted net income (ANI) of more than £60,000 for the tax year, the one with the highest income must pay the high income child benefit charge (HICBC). This is equal to 1% of the amount of the child benefit for every £200 of income over £60,000. So once income reaches £80,000 all child benefit is effectively withdrawn. For example, if your ANI is £70,000, 50% of the child benefit is clawed back.

Just one person in the couple needs to be earning in excess of £60,000, which unfairly penalises single-income households. It does not matter if the child is not yours; if you’re in a relationship with their parent and live together you’re potentially liable to the HICBC. Monitor your income throughout the year so you can set the money aside if needed and avoid a nasty surprise.

Reducing the charge

The trick is to reduce your ANI below £80,000. Ideally to £60,000. This is straightforward if you have some control over your income, e.g. if you run your own company. But if you don’t, what can you do to avoid the HICBC?

One method, if you can afford it, is to increase your pension contributions. While it’s an additional expense the money is not lost but merely diverted into a longer term, tax-efficient investment. Plus, of course, it increases your net income by reducing the HICBC.

Example. Tony and Lulu have four children. Lulu is a pilates instructor and receives child benefit of £4,279 in 2026/27. Tony predicts that his ANI will be £65,000, which means they will have to pay back £1,069 due to the HICBC. If Tony can afford to make an extra net pension contribution of £4,000 before 5 April 2027, he can eliminate the HICBC entirely. Plus, as a higher rate taxpayer, he obtains an extra 20% tax relief.

Making pension contributions to eliminate the charge altogether is an expensive option, but any amount you can pay over to your pension that reduces your income in the £60,000-£80,000 bracket will reduce the HICBC.

Paying any pension contributions via salary sacrifice is not only effective for reducing your HICBC but can also reduce your NI.

Donate it instead

Another option to reduce your ANI is to make gift aid donations in this tax year and/or the next as there’s a carry back facility, but obviously you don’t get to keep the money.

Paying the charge

If you need to pay the charge, you can do so through self-assessment. If you don’t need to complete a tax return for any other reason, you can use HMRC’s online service to pay via PAYE.

If you’re in self-assessment you don’t need to pay the 2026/27 HICBC until 31 January 2028. Put the money in, e.g., an interest bearing account or premium bonds so you still get some benefit from having the cash.