PARENTS could be at risk of losing their child benefit because of this little-known loophole.
If you or your partner earn over £50,000 you have to start paying some of the benefit back through the “high income child benefit charge”.
Parents must make sure they don’t go over the thresholdAlamy
But what families might not know is that interest earned from savings accounts forms part of that income.
And with rates rising, savers will be edging closer to that threshold and could therefore have their child benefits cut.
Therefore, make sure you’re keeping on track of the interest being made from your savings just in case – it’s your responsibility to tell HMRC when things have changed.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “The introduction of the high income child benefit tax charge has made the system hugely confusing with parents being hit with surprise bills.
“At a time when families are already struggling with rising costs it’s a headache many simply do not need.
“The fact that it is based on a parent’s total taxable income which includes savings is something that many people will not realise and given savings rates have been on the rise we could see more families creeping over the threshold and being lumbered with a bill.”
Helen said that one strategy parents could take to bring down income is by paying more into a pension.
Though she said it might not work for families who need that money sooner rather than at retirement.
“Another option could be to put savings into an ISA which will also shelter them while providing easier access to the money in times of need.”
What is the high income child benefit charge?
If either parent or carer starts earning over £50,000, they have to start paying the high income child benefit charge.
This means you have to pay back 1% of your child benefit for every £100 of income earned over the £50,000 threshold.
Once you reach £60,000 of yearly income you have to repay the full amount of child benefit received.
Parents have been caught out by the complicated rules and extra charge and landed with bills for thousands of pounds.
It’s up to parents to notify HMRC if they are liable for the charge and they must file a self-assessment tax return to pay it.
What is child benefit and who is eligible?
Child benefit is paid to parents to help with the costs of childcare.
Payments are usually made to you from the government every four weeks.
By claiming child benefit you also get National Insurance credits that count towards your state pension.
There are two different rates for child benefit.
Currently, parents can claim £24 per week for their first or only child – £96 a month and £1,248 a year.
For any additional children they can claim an extra £15.90 a week per child – £63.60 a month and £826.80 a year.
You normally qualify for child benefit if you live in the UK and are responsible for a child under 16.
But you can also claim the support for a child under 20 if they are in approved education or training.
When two or more people share the responsibility of caring for a child, it can only be claimed by one person.
You’ll be responsible for a child if you live with them or you are paying at least the same amount as child benefit towards looking after them.
This might mean you are paying the equivalent amount of child benefit on food, clothes or pocket money.
You should bear in mind, eligibility changes if a child goes into hospital or care and if your child starts to live with someone else.
Usually, you get child benefit for eight weeks after your child goes to live with a friend or relative – as long as they don’t make a claim.
But it can continue for longer if you make contributions to your child’s upkeep.
Foster parents can also claim child benefit, as long as the council is not paying anything towards their accommodation or maintenance.
Legal guardians or parents adopting a child can also apply for the benefit, but the child has to be living with them.
You will only be able to claim for a short period of time if you leave the UK, for example if you go on holiday or for medical treatment.
For anyone not sure about eligibility, you can contact the Child Benefit Office.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
You can also join our new Sun Money Facebook group to share stories and tips and engage with the consumer team and other group members.