Thousands of mothers are missing out on state pension rights when they don’t have to because of the changes to the Child Benefit system for higher earning families.
In January 2013, the Government introduced something called a ‘High Income Child Benefit Tax Charge’. Under this scheme, where one or both parents in a family receiving Child Benefit have an income over £50,000 per year, a tax charge is incurred.
The tax charge is levied at a rate of 1% of the Child Benefit in payment for each £100 of annual income over £50,000.
For someone with an income of £50,200, the charge would therefore be 2% of their Child Benefit, whilst for someone with an income of £60,000 or more, the tax charge would be equal to 100% of the rate of Child Benefit in payment. The tax charge cannot exceed the total amount of Child Benefit being paid.
Nearly half a million child benefit recipients (overwhelmingly mothers, but can be father’s too) have ‘opted out’ of receiving child benefit. Rather than continue to receive child benefit and incur a tax charge on the higher earner, these mothers have simply opted out and no longer receive child benefit.