Tens of 1000’s extra households can pay BACK youngster profit on account of stealth tax freeze

Tens of thousands more families will be forced to pay back some of their child benefit because of frozen tax thresholds, new findings suggest.

About 35,000 families will be pulled in to what is known as the ‘high income child benefit charge’ over the next three years, a Freedom of Information request by wealth management company Quilter shows. 

This is when the Government claws back child benefit from households where the highest earner has an income above £60,000, and withdraws it completely when they earn over £80,000. 

His Majesty’s Revenue & Customs forecasts show the number of families liable for the charge will rise from 324,000 in 2025-26 to 359,000 in 2028-29. 

More are being dragged into the charge because of fiscal drag, a phenomenon where wages rise but the point at which people start to pay a tax stays the same. 

The threshold was last up-rated in 2024 by Conservative then-Chancellor Jeremy Hunt, going from £50,000 to £60,000. 

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Valuable: Child benefit is worth £26.05 a week for the eldest child in a family, and £17.25 a week for each additional child

The rules state if the highest earner in the household has an adjusted net income of more than £60,000, they have to start repaying child benefit at a rate of 1 per cent for every £200 of income over £60,000. This means filing a tax return. 

Once their adjusted net income reaches £80,000 they must repay all child benefit received, and at this stage many families opt out of receiving it – even though receiving the money and paying it back can have certain state pension benefits. 

Child benefit is currently worth £26.05 a week for the eldest and £17.25 a week for each additional child. 

A popular way to avoid the charge is to use salary sacrifice to reduce the amount you earn on paper. 

The money could be diverted into the higher earner’s pension instead, for example. 

Most of the newly-affected families are expected to be in the tapering range of liability, with the higher earner bringing in between £60,000 and £80,000. 

The HMRC estimates uncovered by Quilter suggests 213,000 families will be in this bracket in 2025–26, rising to 246,000 by 2028–29. 

Around 111,000 families each year will be repaying child benefit in full this tax year. 

Quilter said this ‘reflects the drag of frozen tax thresholds and static benefit parameters against rising nominal incomes.’

It adds: ‘Our FOI shows that tens of thousands more families will be pulled into the high income child benefit charge over the coming years purely because frozen thresholds let inflation and nominal earnings shifts do the work of tax increases. 

‘Families may not be better off in real terms, but more and more of them will see support withdrawn as a result.’

Shaun Moore, tax and financial planning expert at Quilter, says: ‘The data shows that each successive year more parents will be subject to clawbacks of child benefit that eat into household budgets at a time when costs of living remain high.’

Since its introduction a decade ago, the high-income charge has faced criticism for placing an extra burden on working parents, particularly single parents.

A household with two parents each earning £59,000 – a total of £118,000 – will receive child benefit in full, while a household with a sole parent earning £60,000 would see some or all of the benefit withdrawn.

Jeremy Hunt had pledged to significantly reform the charge and consult to move to a system based on a household, rather than individual income by 2026.

However, the Labour Government shelved the plans.