Thousands Missing Out on Child Benefit – And Why Earning £120k Could Leave You Worse Off Than £100k
Sky News’ Money blog today shines a spotlight on two surprising personal finance stories: a huge number of families are failing to claim child benefit, and a quirk in the UK tax system means someone earning £120,000 could actually end up financially worse off than a person earning £100,000.
214,000 Missing Out on Child Benefit
Government figures show that around 214,000 eligible parents are not claiming child benefit — a state payment designed to help with the cost of raising children.
Child benefit is currently worth £25.60 a week for the first child and £16.95 a week for each additional child. For a family with two children, that’s more than £1,800 a year.
But the payment isn’t just about the extra income. Claiming child benefit also:
-
Protects your National Insurance record – helping you qualify for the full state pension later in life.
-
Gives your child an automatic National Insurance number when they turn 16.
Many parents stopped claiming after the introduction of the High Income Child Benefit Tax Charge in 2013, which claws back some or all of the benefit if either parent earns over £50,000. However, even those affected by the tax can still benefit from registering a claim while opting out of the payments to keep the National Insurance perks.
Why £120k Could Be Worse Than £100k
In a separate quirk of the UK tax system, personal finance experts point out that someone earning £120,000 could actually be worse off than a colleague earning £100,000 — due to the way the personal allowance is withdrawn.
The personal allowance — the amount of income you can earn before paying income tax — is currently £12,570. Once your income exceeds £100,000, you lose £1 of personal allowance for every £2 earned above this threshold. This creates an effective marginal tax rate of 60% between £100,000 and £125,140.
The result:
-
At £120,000, you pay significantly more tax on the extra £20,000 than you might expect.
-
Without careful tax planning (e.g., pension contributions or charitable donations), the higher salary can result in less disposable income than someone earning less.
What It Means for You
These two stories highlight the importance of understanding how benefits and tax rules interact with your income. Parents may be missing out on valuable future entitlements by not claiming child benefit, while high earners could avoid unnecessary tax losses by making strategic use of allowances and deductions.
Thousands Missing Out on Child Benefit – And the £120k Salary Trap That Could Leave You Worse Off Than £100k
Today’s Sky News Money blog tackles two surprising issues in UK personal finance: a large number of families are not claiming child benefit despite its long‑term perks, and a little‑known quirk in the tax system means that a person earning £120,000 could actually end up with less take‑home pay than someone on £100,000.
214,000 Parents Missing Out on Child Benefit
Official figures suggest that around 214,000 parents who are entitled to child benefit are not claiming it.
Child benefit is worth:
-
£25.60 a week for the first child
-
£16.95 a week for each additional child
For a family with two children, that’s £1,884 a year — money that could make a difference during a cost‑of‑living crisis.
However, the financial payment is only part of the picture. Claiming child benefit also:
-
Protects your National Insurance contributions – vital for securing the full state pension later in life.
-
Automatically registers your child for a National Insurance number at age 16.
Many parents have stopped claiming due to the High Income Child Benefit Tax Charge, introduced in 2013. This tax clawback starts when either parent earns above £50,000 and can reclaim all of the benefit if income exceeds £60,000.
But even if you don’t want the payments (to avoid the tax bill), you can still register for child benefit and opt out of receiving the cash — ensuring you keep the National Insurance and pension entitlements.
The £120k Salary Trap
The second story highlights a hidden penalty for higher earners. Under the current UK income tax rules, the personal allowance — the first £12,570 of your income that is tax‑free — begins to be reduced once your income passes £100,000.
You lose £1 of allowance for every £2 you earn above £100,000. This means:
-
By £125,140, your personal allowance is gone completely.
-
The effective marginal tax rate in this band is 60% — far higher than the standard 40% higher‑rate tax.
Example:
-
Earning £100,000 – You keep your full personal allowance.
-
Earning £120,000 – You lose £10,000 of personal allowance, meaning you pay 40% tax on that £10,000 (£4,000) plus tax on the extra £20,000. This results in a much higher tax bill than you might expect — and in some cases, less take‑home pay than someone earning £100k.
How to Avoid the Trap
Financial planners recommend a few strategies for those in the £100,000–£125,140 range:
-
Make pension contributions – This reduces your taxable income while boosting your retirement savings.
-
Give to charity – Eligible charitable donations can lower your taxable income.
-
Salary sacrifice schemes – Such as cycle‑to‑work or additional pension contributions, can also reduce your taxable pay.
Why This Matters
These two stories illustrate how knowledge of the tax and benefits system can have a major impact on your finances. Many parents are missing out on valuable benefits they could claim at no long‑term cost, and high earners may be unknowingly falling into an avoidable tax trap.
Share this content: