Anyone earning over £50,000 per annum and living in a household that receives Child Benefit has to pay additional Income Tax. The Institute for Fiscal Studies has shown that because the £50,000 threshold has never changed, and there are no plans to change it, an increasing number of families are having to pay the additional tax.
Six years ago today, Child Benefit was first withdrawn from families containing someone whose annual income is above £50,000 a year. This threshold has since remained frozen in cash terms and there remain no plans to change it. This means that around 36%, or 370,000, more families will lose some Child Benefit in 2019–20 than in 2013–14. Continuing the freeze would mean that, from April 2021, significant numbers of families who do not contain a higher rate income taxpayer will begin to lose some of their Child Benefit for the first time. Moreover, by 2022 more than one in five families with children are set to lose at least some of their Child Benefit – up from one in eight when the policy was introduced. This is one of a growing list of examples of a part of the tax and benefit system being frozen, which never makes sense as an indefinite – and hence potentially permanent – policy.
It is not strictly true that Child Benefit is being withdrawn. Child Benefit remains an unconditional payment for every child – unless of course the Child Benefit recipient, usually the mother of the children, decides to withdraw her claim in order to avoid a high earner in the family having to pay the additional tax. But in terms of a family’s net income, the Institute for Fiscal Studies is of course correct. If the threshold is not raised, then an increasing number of families that receive Child Benefit will find themselves paying additional Income Tax.
To read the research, click here.