Since 2013, something called the High Income Child Benefit Charge (HICBC) has been in place. If the higher earner in a household that has received Child Benefit has income of more than £50,000, they have to start giving the Child Benefit back to the government again, on a sliding scale, via their Self Assessment Tax Return. If they have income of more than £60,000, they have to give it all back.
If both parents earn £50,000, that's therefore fine - nothing to give back, even though total household income is £100,000. But if one earns £60,000 and the other zero (or a single parent has income of £60,000) then all of the Child Benefit has to be given back, despite household income being £40,000 lower!
If you've two children, HICBC could mean giving back nearly £1,800 of Child Benefit to the government.
The new system wasn't brilliantly publicised, and many of those affected weren't in the Self Assessment system anyway, so didn't have the new question on their tax return to alert them to the change. So it's not uncommon to see people suddenly being told they need to pay back several years' Child Benefit to HMRC. HMRC might accept repayment over a period of time, but repayment will have to be made.
The most obvious way you could avoid or reduce the charge is with pension contributions. If your income is £60,000, then paying £10,000 into a pension (which means making an £8,000 contribution, as personal pension contributions are paid net of 20% tax) reduces your income to £50,000 for these purposes, and you get to keep all the Child Benefit. Of course, if you're struggling with household income as it is, or earning way over £60,000, things may not be as easy as that. But if you can stand the short-term cashflow hit, pension contributions do become very tempting at that level of income - and the more children you have, the greater the saving!
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