Parents who have two kids or more could lose £20,000 thanks to a quirk of the tax system which Labour is unlikely to change in Wednesday’s Autumn Budget.
Currently, a parent who earns £102,000 who has two young children will miss out on a whopping £20,000 of support from the government by September 2025 according to investment services company AJ Bell.
The firm has pointed out a little known loophole in our Income Tax system which could see you surrender child support from the government worth £13,000 this year and £20,000 by September next year.
The £20,000 figure is worked out by losing £2,279 in child benefit in 2025, £4,000 of tax-free childcare and £13,726 worth of free childcare hours, none of which are allowed if you earn £100,000 or more.
And parents who are still paying off a student loan will be even worse off as their income rises, because they will surrender up to 9 percent of their earnings to student loan repayments on top.
AJ Bell’s Chris Young said: “What’s astonishing is how much their salary would need to increase to get to the same post-tax income and the value of childcare support they had before their adjusted net income was tipped over £100,000,” Young said.
“Their salary would need to increase to £126,624 before they get back to the same disposable income as when they were earning £99,000. This puts parents in the ridiculous place where they are effectively worse off earning between £100,000 and £127,000.”
Labour says its Budget, set to be delivered on Wednesday, will be geared around helping ‘working people’, but the party has refused to answer whether someone who earns £100,000 counts as a working person or not, raising fears that the government will do nothing to remove or reduce this ‘tax trap’ on high earning parents in Rachel Reeves’ first Budget on Wednesday.
