Perhaps the solely greatest perk of getting children within the UK is that the state provides you free cash. Nevertheless since 2013, the icily-named Excessive Earnings Little one Profit Cost (HICBC) has tapered payouts for households the place both companion’s revenue is above a sure threshold.
This revenue threshold is at the moment £60,000 a yr.
Above that stage Little one Profit is tapered through the HICBC at a fee of:
- 1% of the Little one Profit is repaid for each £200 of revenue above £60,000
At £80,000 and above the profit has been totally withdrawn. (And no additional HICBC is due).
A two-child family the place one companion’s revenue is over £80,000 will lose £2,251.60 of Little one Profit within the 2025/2026 tax yr because of the HICBC.
That’s fairly a bit of change.
What counts as revenue?
Your ‘web adjusted revenue’ determines legal responsibility for the HICBC.
Internet adjusted revenue means cash from all sources, together with financial savings curiosity and dividends (outdoors of SIPPS and ISAs) and revenue from rental properties – adjusted for sure allowances.
Briefly: something you’d declare to the taxman.
Your pension and the Excessive Earnings Little one Profit Cost
Are you a Monevator-reading mum or dad whose Little one Profit goes the best way of intercourse, sleep, and thin denims?
Let’s see how one can preserve your free cash and retire richer, too.
Sadly the technique – placing extra right into a pension to scale back your revenue – does require some near-term sacrifice.
Within the authentic model of this submit – written the day after the HICBC was introduced in 2012 – I claimed…
I’m fairly certain I may drive a lawnmower by way of the common £60,000-earner’s verdant funds, so I don’t assume that needs to be an impediment for most individuals who put their thoughts to it.
Moreover, this technique lets you preserve getting free cash from the taxpayer – from the likes of me.
So when you’re nonetheless complaining, cease it and begin saving as a substitute.
…however I’m a lot much less sanguine now.
Even middle-class households are struggling to funds in at this time’s low-growth, high-tax financial system.
Optimistic adjustments since 2024
Not less than the Excessive Earnings Cost Profit Cost isn’t as onerous because it was.
Up till 2024 the revenue threshold was £50,000 and the profit was tapered at 1% for each £100. Relying on what number of children you had, your efficient marginal tax fee (EMTR) might be 71% or extra.
Nevertheless the upper £60,000 threshold and the taper fee being halved since 2024 has introduced that highest EMTR all the way down to 57% for a three-child family.
Nonetheless not nice. However much less ludicrous than earlier than.
The Excessive Earnings Little one Profit Cost
Dad and mom are paid Little one Profit at two completely different charges:
- £26.05 every week for the eldest or solely little one
- £17.25 every week for each extra little one
As an example, a two-child household receives:
(£26.05 + £17.25) x 52 = £2,251.60 a yr
…supplied neither family companion’s revenue is above £60,000 a yr.
Above £60,000, the profit is progressively withdrawn through the HICBC as I outlined earlier.
Word: many individuals assume a mixed family revenue of over £60,000 triggers the tapering.
That is incorrect. Solely one in all you must set off the £60,000 tripwire.
If you happen to earn £40,000 and your companion earns £30,000, say, then your Little one Profit stays unmolested.
That’s as a result of neither of you has an revenue above the £60,000 threshold – regardless of your family bringing in £70,000 complete.
How the HICBC claws again Little one Profit on incomes over £60,000
The maths is simple:
- For each £200 of revenue over the £60,000 threshold, 1% of the profit is withdrawn through the HICBC.
- You may nonetheless obtain Little one Profit. However you’ll pay some or all of it again through the Cost.
- By £80,000, all of your Little one Profit is tapered away.
- The HICBC is collected through your annual self-assessment tax return. If you happen to don’t submit one and your revenue makes you answerable for the HICBC, you should register with HMRC to start submitting.
- From August 2025 you’ll reportedly be capable of pay the HICBC through PAYE. I’m certain there will likely be no delays, and that the whole lot will run easily.
Word that revenue generated inside an ISA doesn’t rely in the direction of the £60,000 threshold.
After years of frozen tax brackets and all of the dividend and capital achieve allowance cuts since 2012, I can’t imagine many Monevator readers nonetheless have unsheltered belongings that they may but defend inside an ISA.
However for the document, lowering your ‘web adjusted revenue’ when you declare Little one Profit is one more reason to ISA-fy all you may.
Shedding Little one Profit is like paying the next marginal tax fee
Clawing again Little one Profit through the HICBC is successfully the next marginal revenue tax fee on earnings between £60,000 and £80,000.
For a mum or dad with an revenue between £60,000 to £80,000, their efficient marginal revenue tax fee (EMTR) rounds to:
- 47% for one little one
- 51% for 2 youngsters
- 56% for 3 youngsters
Your EMTR rises with extra youngsters since you are repaying extra Little one Profit for each further £1 you earn over the brink, through that £200 taper.
Earlier than any HICBC, you pay higher-rate tax of 40% on revenue between £60,000 to £80,000.
Your EMTR = 40% + (Annual Little one Profit/200)
For instance, you have got two youngsters and so declare £2,251.60 in little one profit. You earn over £60,000.
EMTR = 40% + (2251.60/200) = 51%
Ouch!
Utilizing a pension to scale back your revenue
To maintain all of the Little one Profit, each mother and father have to earn lower than £60,000. This manner your family just isn’t answerable for the Excessive Earnings Little one Profit Cost.
However what if one or each of you is unlucky sufficient to get pleasure from the next revenue?
There are some things you are able to do about it:
- Cut up up along with your higher-earning companion
- Inform your boss you’ll work without cost
- Inform your husband, spouse, or whoever, that they’ll stop their high-paying job in return for sure non-taxable favours
- Make hefty pension contributions to scale back your taxable revenue
I’m guessing the ultimate possibility would be the most palatable for Monevator readers. (Although as I haven’t met your partner I can’t make certain.)
Topping-up your pension to scale back your revenue is one of the simplest ways to maintain all of your Little one Profit. (That’s assuming you’re not a excessive high-earner, during which case it gained’t work. Or when you’re sure you’ll die earlier than you may entry your pension (at age 55/57) and so be unable to spend it, during which case there’s no level.)
The tactic is straightforward:
Say you’re the only earner in your own home, and also you make £65,000 a yr.
Rising your pension contributions by £5,000 a yr will scale back your revenue to £60,000. You’ll due to this fact preserve all of your little one profit.
If yours is a two-income household and also you each earn over £60,000, you’ll each have to make further pension top-ups to take you each under the hazard zone.
All that is completely authorized. (Recall the distinction between tax evasion and avoidance).
And doing so might be value it when you can – although not fairly the slam dunk it was below the outdated system, with its much more punishing efficient charges.
At the moment a higher-rate taxpayer with two children who makes use of further pension contributions to scale back his or her revenue sufficient to maintain all their Little one Profit will successfully be paying simply 49p for each £1 of top-up into their pension.
That’s doubling the invested cash at a stroke – earlier than even a whiff of any funding returns.
Do bear in mind although that your pension revenue will finally be topic to tax. However very most likely at a decrease fee than the EMTR implied by paying the Excessive Earnings Little one Profit Cost.
Necessary: None of that is tailor-made recommendation in your circumstances and I’m not a tax adviser. Get skilled recommendation when you want it.
Nonetheless incomes an excessive amount of to flee the cost?
Some folks will earn an excessive amount of for it to be sensible to retain Little one Profit solely by growing their pension funds.
I’m sorry in your loss.
My sympathy is proscribed the richer you’re – as I mentioned earlier, I don’t love paying for different folks’s children’ mini-pashminas and pony-riding lessons.
However for the document, there could also be different methods to additional convey your revenue down.
You would possibly be capable of sacrifice some wage in return for sure firm advantages, for instance.
It’d even be potential to tilt your remuneration in the direction of very long-term share choices or related. Clearly you’ll have to do your homework, and doubtless take skilled recommendation.
If you happen to earn greater than £60,000 as a result of you have got financial savings or investments producing revenue outdoors of an ISA or pension – and also you’re extra assured in your relationship than I ever could be – then you can switch among the income-generating belongings to your lower-earning companion. (Ensure you don’t push their complete revenue over the £60,000 threshold, clearly).
Does all this stick within the craw of some child-less readers?
Effectively sure. I respect Little one Profit wasn’t designed to spice up the pensions of the center lessons. As I mentioned, I’m simply explaining what’s potential. I’m not passing ethical judgement.
Additionally, I didn’t invent the Byzantine tax and welfare system. If I had it wouldn’t seem like this. (Private finance bloggers would get particular tax reliefs. No one thinks of our struggles!)
Must you declare Little one Profit even when you’ll repay it through the cost?
Sure. There are related Nationwide Insurance coverage credit that imply it’s greatest to say Little one Profit, even when you in the end repay it or opt-out of truly receiving it.
Don’t attempt to illicitly keep away from the Excessive Earnings Little one Profit Cost
You’ll usually come throughout folks incomes over the £60,000 threshold who’ll let you know they don’t pay the HICBC.
Not as a result of they make further pension funds to convey their revenue down. However just because they don’t declare their standing correctly to HMRC.
That is tax avoidance. It’s unlawful, which is all that actually issues. However you’re additionally liable to get caught and fined.
Okay, it’s true the variety of penalties collapsed within the last yr of the Tory authorities. However I can’t see why our cash-strapped present administration would let folks off the hook.
You most likely don’t flirt with criminality elsewhere in your life. Why do it right here?
Residing a £60,000-a-year life-style
The elephant within the room is after all that you may’t spend your pension till you’re, properly, a pensioner.
Though you’ll be quids-in sooner or later by boosting your pension pot – because of your beneficiant fellow taxpayers – you’ll have to take residence sufficient now to maintain your little darlings alive sufficient to qualify for his or her Little one Profit. To not point out some other spending you contemplate important.
You’ve no selection however to take a scythe to your funds. Solely you may work out what’s dispensable and what’s non-negotiable for you.
As in your little price centres – maybe they may get a paper-round?
Is the Excessive Earnings Little one Profit Cost unfair?
I used to be extra militant in 2012 once I first wrote this text. Right here’s my youthful self, with solely very mild edits:
I’m the primary to agree the advantages system is bloated, and that we’d do higher tackling revenue inequality by way of an overhaul of the tax system – versus politicians bribing us with our personal cash by way of welfare funds, tax perks, and different kickbacks.
Alternatively, you’re my expensive readers, and plenty of of you stand to lose your little one profit subsequent yr […]
Now, we may debate the politics of welfare all day. (Not to mention the ethics of getting three youngsters).
Supporters of common little one profit argue that an revenue of £60,000 isn’t any nice shakes, particularly within the South East.
Shopping for a home with room for a child or two is already a Herculean feat for anybody down right here and not using a wealthy benefactor. (Say a mum or dad, a lottery win, a financial institution bonus, or a mortally-challenged grandparent).
And do we actually desire a society the place solely the poor can afford to have children?
Alternatively, London property costs are simply as excessive for us childless singletons – but we don’t get a handout from the general public purse.
Furthermore I see folks losing cash all day lengthy – particularly middle-class mother and father.
Barely extra tongue-in-cheek… maybe I have to safe my monetary future much more than a mum or dad does. Why? As a result of there will likely be no spare room in my daughter’s home in my wrinkly decrepitude.
So why ought to my taxes pay for somebody’s £1,145 Bugaboo Fox 5 all-terrain stroller?
In our over-crowded world, I’m additionally sceptical that oldsters are mentioning future taxpayers on my behalf.
That’s the economics of a Ponzi scheme – and one ill-suited to a planet with restricted sources.
Ah, the straightforward certainty of Indignant Younger-ish Man.
I replace the Bugaboo hyperlink and worth in that excerpt, by the way. Apparently the hilariously bougie ‘Bugaboo Lambskin Footmuff’ has been discontinued.
Who is aware of what number of have been (successfully) purchased with Little one Profit?
Investing for the kid’s profit
Within the years since 2012, it’s transpired that some savvy mother and father who obtain however don’t have to spend Little one Profit – certainly a dwindling quantity, given the price of residing disaster – usually stash the funds right into a Junior ISA.
I applaud that because the Monevator editor. However as a taxpayer I’ve ‘questions’.
Oh properly, all of us have our views on all these things.
At the moment’s extra milder me simply hopes the pension workaround will assist these readers who want it.
House economics by Kafka
If you happen to’ve ever questioned why our tax system is so unfathomable, the Excessive Earnings Little one Profit Cost supplies an ideal case research.
A foolish system was modified with an excellent sillier system, at nice expense and problem for everybody – together with HMRC – and regardless of it producing ‘cliff edges’ of unfairness.
The jammiest {couples} who comply with this pension top-up technique are working mother and father incomes, say, £61,000 every.
In the event that they each do £1,000 in further pension funds they’ll preserve all their Little one Profit – and retire richer. This regardless of them nonetheless having a family revenue of £120,000 a yr.
In distinction, contemplate a sole earner in London on £80,000 with a full-time child-rearing partner.
This breadwinner can’t afford to scale back their revenue by £20,000. Mortgage and vitality prices have skyrocketed. And practically two-fifths of their revenue is now taxed on the higher-rate, because of frozen tax brackets.
Such a mum or dad will lose all their Little one Profit. Though their family lives on £40,000 much less pre-tax than the earlier couple.
If you happen to needed a coverage to encourage each mother and father to work full-time, you can do worse. I doubt that was the concept.
Bear in mind this the subsequent time a politician talks about being ‘honest’.
Everyone seems to be at it in 2025
Again in 2012, Monevator was one of many first non-accounting web sites to speak about making pension contributions to decrease your earnings under a sure threshold, to scale back your efficient marginal tax fee.
Clearly the idea wasn’t new. However most middle-class folks didn’t give it some thought.
How completely different from at this time.
Hundreds of thousands extra now pay higher-rate tax, family budgets are bloated with inflationary pressures, and a sluggish financial system means practically everyone seems to be watching their pennies.
Looking for an edge within the tax system is not a pastime for monetary nerds. It’s a necessity for everybody.
This text on the Excessive Earnings Little one Profit Cost was up to date in July 2025. Feedback under could confer with the earlier regime with a unique revenue threshold and taper fee. Please test the remark date if uncertain.
