Earning Over £60k? Stop! Don't Lose Your Child Benefit. The 'Salary Sacrifice' Hack to Save 60% Tax

Earning Over £60k? Stop!

Congratulations! You just got a pay rise, and your salary has finally crossed the £60,000 mark. You are feeling great.

But wait. A few months later, you receive a brown envelope from HMRC telling you to pay back some (or all) of your Child Benefit. Suddenly, that pay rise doesn't feel so sweet.

This is known as the High Income Child Benefit Charge (HICBC). It is a notorious "tax trap" that creates an effective tax rate of over 60% for middle-class families. But there is a completely legal, government-approved way to avoid it while boosting your retirement pot: Salary Sacrifice.

---

The Trap: What Happens at £60,000?

In the UK, Child Benefit is paid to parents to help with the cost of raising kids (approx. £25.60/week for the first child and £16.95/week for subsequent children in the 2025/26 tax year).

However, the rules state that if one parent has an "Adjusted Net Income" over £60,000, the government starts clawing this money back.

• £60,000 to £80,000: For every £200 you earn over £60k, you must pay back 1% of your Child Benefit. (This taper threshold was increased from £50k in 2024).
• Over £80,000: You must pay back 100% of the Child Benefit.

This creates a bizarre scenario where earning £65,000 can actually leave you with less disposable income than someone earning £60,000, once you factor in the 40% Income Tax, 2% National Insurance, and the Child Benefit repayment.

---

The Solution: Pension Contributions

The HICBC is calculated based on your Adjusted Net Income. Crucially, this is your income AFTER pension contributions (and Gift Aid).

Salary Sacrifice is the most efficient way to lower this number. You agree to give up a part of your gross salary, and your employer puts that money directly into your pension instead.

Why Does This Work?

1. Lowers Your 'Official' Income: By sacrificing salary into a pension, you reduce your taxable income on paper.
2. Restores Child Benefit: If you bring your adjusted income back down to £60,000, you keep 100% of your Child Benefit.
3. Saves 40% Tax: You avoid paying the 40% Higher Rate tax on the sacrificed amount.
4. Saves NI (The Bonus): Unlike personal contributions, Salary Sacrifice also saves you National Insurance contributions (currently 2%).

---

Real-Life Scenario: The Power of Pension

👨‍💼 Meet David (Salary: £65,000, 2 Kids)

David earns £65,000. He has two children, so his family receives roughly £2,212 a year in Child Benefit.

Scenario A: Do Nothing

• He is £5,000 over the threshold.
• He is in the "taper zone" (£60k-£80k).
• He must repay 25% of his Child Benefit = £553 Tax Bill.
• He also pays 40% Income Tax on that £5,000 = £2,000.
• Effective Tax Rate: Over 51% on that chunk of income.

Scenario B: Salary Sacrifice £5,000 into Pension

• He puts that extra £5,000 into his workplace pension.
• His Adjusted Net Income drops to £60,000.
• Child Benefit Repayment: £0. (He keeps the full £2,212).
• Income Tax on that £5k: £0.
• Result: He has effectively saved thousands in tax and boosted his retirement fund by £5,000 instantly.

---

Alternative: SIPP (Self-Invested Personal Pension)

If your employer doesn't offer salary sacrifice, you can open a SIPP and pay into it from your net pay. This still lowers your Adjusted Net Income.

Warning: With a SIPP, you only get 20% tax relief automatically. You MUST claim the other 20% (Higher Rate relief) by filing a Self Assessment Tax Return.

---

Critical Update: Household Income Reform (April 2026?)

Keep an eye on the news. The government has proposed moving the HICBC system to be based on Household Income rather than individual income by April 2026. This would make the system fairer for single-earner households. However, until this legislation passes, the current £60k individual limit stands.

---

Stop the Tax Leak Today

Paying tax is a duty, but paying unnecessary tax is a mistake.

By using Salary Sacrifice, you are not dodging taxes; you are simply prioritizing your future self (pension) over the taxman, while keeping the support (Child Benefit) your family is entitled to. Check your payslip and talk to your HR department today.

General Advice Warning: The information provided in this article is based on UK tax laws for the 2025/26 tax year. Tax rules can change (e.g., in the Budget). Salary Sacrifice may affect your ability to get a mortgage (as your salary appears lower) or other employee benefits. Please consult an accountant or independent financial adviser before making significant changes to your pension contributions.