How to Avoid the Child Benefit Trap

If you have kids and pay tax, be careful you don’t accidentally fall into the Child Benefit Trap. You could see marginal tax rates of 70%+. Find what it is and what you can do to protect yourself.

Child benefit was once a universal benefit but in recent years this has been removed for some parents who are considered “high earners” by the government. If you or your partner earn more than £50,000 then your child benefit is reduced by 1% per £100 until at £60,000 you have nothing.

Child benefits rates increased in 2020 (which I wrote about here) and the allowance is £21.05 for the eldest / only child and £13.95 for additional children. That works out at about £1080 for one kid, £1,820 for two, £2,545 for three and £3,271 for four.

Removing child benefit has the effect of massively increasing your tax rate. The graph below shows you the effective marginal tax paid for an earner with two kids (non-Scottish tax payer) earning between £0 and £100,000.

Considering earning £50,000+ puts you into the 40% tax bracket with 2% national insurance; the marginal tax rate of earning between £50 – £60,000 could mean an effective tax rate of 53% for one kid, 60% for two, 66% for three and 73% for four.

First World Problems?

On the face of it, crying over paying a bit more in tax or losing child benefit won’t win much sympathy. It is however particularly galling that the sacrifices that are often required to change to a higher paying job like putting in more hours in the office and needing to pay more for childcare or moving to an expensive location where the higher paying jobs are is punished by the tax system. As you can see from the second graph above, the effective tax rate for someone with 2 kids jumps from 25% to over 30% as child benefit is removed. It’s punitive in my option. Unfortunately, the policy seems to be here to stay and it’s our job to navigate the tax system and not reform it.

The British tax system is flawed and some things (work) are taxed a lot more than others (wealth). On that basis, it’s probably worth considering if there’s anything to be done to mitigate this tax grab.

8 ways to avoid the Child Benefit Trap

So you are looking like your are going to lose your child benefit? No problem; here are some easy ways to fix that problem

1. Increase your workplace pension contributions

This is probably the easiest way as the money comes from your payslip, is processed by your company and you may benefit from matched employer contributions or even Salary Sacrifice – which can be a good move.

2. Make a personal SIPP / pension contribution

This is easy to do as well. SIPP contributions can be made at any time in the tax year and your SIPP provider claims the 20% basic rate tax (running a £2000 contribution into £25,000) and you can claim the other 20% / £500 in your Self Assessment. Ideally you can do this at the end of the tax year once your tax position is known.

3. Buy additional holiday time

Some companies offer you the chance to buy additional weeks holiday. If that’s an option, strongly consider it. Typically 1 week = 2% of salary, but when over 50% of that is eaten in tax, are you losing that much? That’s the horror of marginal taxation.

4. Join the Cycle to Work Scheme

The government’s Cycle to Work Scheme is another option, cycling is great fun, good for you and (virtually) free and it also reduces your taxable income but at the price of an overpriced bike.

5. Include all deductions on your self assessment

This might sound a bit boring but did you know that you can claim tax relief on a range of things from Professional Body membership to business mileage and even uniform allowance?

(I once worked at a company that would only pay mileage based on distances further than if I had commuted to work that day a 75 mile round trip. I frequently had to travel 120 miles to a customer but could only claim 45 miles from my employer at a rate of 45p/mile. I was able to claim the 75 miles from the HMRC at 45p per mile which reduced my taxable income. Keeping track of this saved me a lot in tax and child benefit).

6. Charitable Donations

For those of you who are that way inclined, you can offset your taxable income by making charitable donations. This needs to be to a registered charity and you should keep records (should they check up on you). Registered charities include the National Trust meaning you can give and get back.

7. Maximise your ISA and optimise assets

If you hold shares in a General Investment Account (GIA) which pay dividends, these count towards your taxable income. They may be taxed differently but they still count. If you move these to an ISA you’ll be shielded from not only dividend tax but also the Child Benefit Trap. Alternatively, move them into the lower earning partners name and remember that unlimited transfers between partners are fully tax free (so no CGT to worry about).

8. The SIPP Swing Method

There is an annual SIPP allowance of £40,000 but what can you do if your taxable earnings are £100,000? Well, the answer is to perform a bit of SIPP Swinging. What is SIPP Swinging I hear you ask? Simply put, you swing your SIPP contributions on an annual basis to get you down to £50,000 taxable income every other year.

  • Ordinarily
  • All Years: Income = £100,000 and SIPP = £40,000 gives 0% Child Benefit
  • With SIPP Swing
  • Year 1: Income = £100,000 and SIPP = £50,000 gives 100% Child Benefit
  • Year 2: Income = £100,000 and SIPP = £30,000 gives 0% Child Benefit

The net effect is you get Child Benefit half of the time. This is based on the fact that the £40,000 SIPP limit allows a carry forward over 3 years meaning you could pay in £120,000 this year if you’ve not paid in previously to a pension.

For earners above £100,000 the removal of the personal allowance is even more reason to use the SIPP Swing. More details here.

Things to Watch Out For

Unexpected bonus at work

You may be lucky enough to get a larger than expected bonus at work. You can normally opt to have this bonus paid to your pension or taken as taxed income.

Benefit in Kind

If you have a job which gives you a “free” car, private healthcare or a wide range of other freebies; it’s not 100% free. This is called a Benefit in Kind (BIK) and is included annually in your P11d statement that comes out around July each year for the previous year. The car one is probably the biggest component and it’s caught people out before. I have written before about Child Benefit Sad Face idiots – expect no sympathy form me, know what your BIK is and include it in your sums!

Calculating Taxable Income

Handily the government has a child benefit tax calculator which you can use to work out, tweak and optimise your position and retain child benefit.

What about EIS and VCTs

EIS and VCTs are scheme to legally avoid tax. They can be used to get a rebate on tax paid but technically they don’t reduce your taxable income and therefore are of no use to avoid the Child Benefit trap. More information on VCTs here.

Why you should still enrol for Child Benefit even if you won’t get it.

So you are part of a couple where one of you earn well above £60,000 and you can’t reduce that to get your Child Benefit back. You should still claim for Child Benefit as getting it ensures that you collect a National Insurance stamp that counts towards your state pension until your youngest child is 12 – that’s over a third of the way towards the 35 years needed to get the full state pension (of £175.20 a week). It’s really money for nothing. This article from the Money Advice Service more information.


Leaving aside the merits of reducing Child Benefit for “high earners”, it’s possible to use some or all of the 8 ways to avoid the Child Benefit trap. The best thing to do is to pay more into your pension (but that can impact FIRE plans) but keeping a track of what your exact liability is and then look at steps to take to reduce/mitigate your position. It’s worth it too since child benefit is a nice top up to your income and tax free.

Good luck, GFF.


  1. Great post. Also worth a mention here is the fact that tax-free childcare (£2k pa net) is taken away at £100k+. Given the already 62% marginal rate up to £125k, this can result in some really nasty marginal rates at the lower amounts. All I do now is pay more into pension and occasionally buy holiday, but perhaps I should get that new bike…

    Liked by 1 person

  2. Good overview. When our son arrived 6 years ago I became acquainted with the complexity of the system. Traditionally it seems that the Mother is usually the one encouraged to sign up for child benefit.

    When I stopped working to “stay at home” for a year we flipped the child benefit into my name so I could still have NI credits.

    When I returned to work I used salary sacrifice into my pension to ensure that we still qualify for child benefit.

    Liked by 1 person

    1. You are right that CB is only paid to one parent but the £50,000+ trap applies to either partner in the household.
      I am checking my NI status now to see if we need to change things around since I am not working


      1. If your partner is still working it would most likely be worth you flipping the Child Benefit into your name. It’s an easy enough process. NI credits can also be transferred between spouses / partners. Your application should be made before the end of the tax year (5 April) following the relevant period for which you want to transfer the credits. Some parents can get a bit “twitchy” about putting the child benefit in the other parents name.

        Liked by 1 person

  3. I’m not sure I follow the pension swinging gff.

    Case in point. I earn 98k (plus bonuses)

    So I sacrifice 40k and I’m still earning 58k. So how do I ‘swing’ my pension as I’ll use my allowance up every year? Or have I misunderstood


    1. The 40k allowance is actually a 120k allowance rolling over 3 years. You could make a 48k contribution in year one and year two followed by a 24k in year 3 and get the children’s allowance in 2 out of 3 years.


    2. Do you have any pension carryover to use up from previous years that you contributed less than 40k to your pension ? If not, then you’re a bit stuck. I’ve got some carryover allowance so I’m contributing about 65k per annum to my pension, sadly I’ll have used up my carryover in a year or so.

      Sadly the “system” judges some people as being far too rich and accordingly removes their “benefits” and applies punitive tax thresholds which can make you wonder why you should work harder.


  4. In a prior life, I dealt with a large organisations P11d submission and also felt the wrath of some employees for the impacts this post is about! For earners of 30-40k, cars can easily add 20%+ to your taxable income. My other point of note is on the cycle to work scheme, this can also end up a P11d benefit as a lot of employers tend to “gift” the bike rather than take it back or if the employee leaves the company. All be it, it is not as significant as a car.


    1. The cycle to work scheme deserves it’s own write up.
      Technically the bike is not yours but the company’s. I’ve never gone for it as the cost of a new bike isn’t attractive to me and I have enough bikes already


  5. 9 ways to avoid the Child Benefit Trap
    9. Decide to stop work if you are in a financial position where you can do this. This benefit trap may prove to be a tipping point if you are ready to walk away and are deciding when to do it.

    Liked by 1 person

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