Child benefit system changes
The rules governing the state’s payments for your children were tweaked in the Budget
Chancellor Jeremy Hunt has revealed that the amount of child benefit many families receive will change from April. Child benefit is worth £24 a week for your first child, then £15.90 for each additional one. This will rise to £25.60 and £16.95 from April. However, if one person in your household earns more than £50,000, the amount of child benefit you are entitled to starts to shrink, tapering off to nothing if one of you earns more than £60,000.
This will change in April when the amount you can earn before you start to lose the benefit will rise to £60,000 with it then tapering off to zero if you earn more than £80,000. The move doesn’t go as far as campaigners had hoped. The High Income Child Benefit Charge still kicks in if only one partner earns more than £60,000, regardless of the whole household income. This means a household where one partner does not work and total income is £80,000 will receive no child benefit.
But a household with two working parents earning £59,000 each, so £118,000 collectively, will still get the full amount. The government has recognised that this is “not fair” and says it is working towards creating a system based on household income rather than individual salaries by April 2026. For now though, the new rules are better than nothing. “The changes to the controversial High Income Child Benefit Charge mean nearly half a million families will now be better off by an average £1,260 a year, while 170,000 families will be removed from the tax,” says Rupert Jones in The Guardian.
A higher threshold
The new rules mean you will receive the full child benefit if you earn under £60,000. After that the High Income Child Benefit Charge kicks in: you pay 1% of the child benefit you receive for every £200 of income you earn over £60,000. If you earn £70,000, you’ll lose 50% of your child benefit. If you earn £80,000 of more, you lose 100% of your entitlement.
If you earn more than the High Income Child Benefit Charge threshold you must fill out a tax return to repay the charge. You will still receive the full child benefit, but it is up to you to repay it or face a fine. But this is also set to change. In future, the government intends to take back what it is owed via your tax code. Until that happens, however, you will still need to fill out your tax return. With the changes not coming in until the 2024-2025 tax year, parents will still need to fill out a tax return under the current rules for 2023-2024.
Forcing families to fill out tax returns to repay child benefit or face fines has led to more than 680,000 households opting not to receive the benefit at all. However, that can have unintended consequences. If you don’t register for child benefit and one of you isn’t working while you raise children, then you will miss out on vital national insurance credits that build up your entitlement to state pension. The way around this is to register for the benefit – in the name of the non-working parent – but tick the box to say you don’t actually want to receive it.
If you are affected by the High Income Child Benefit Charge, note that it is based on your income after pension contributions. So if your earnings are close to the £50,000 threshold, or the new £60,000 one, it may be worth upping your pension contributions so you still receive the benefit. Higher earners may also want to boost their retirement income.
Financial advisory firm Quilter has calculated that a parent earning £75,000 with a four-year-old child could gain £16,000 in child-benefit payments by increasing their pension contributions from £200 to £600 a month. The move would leave them nearly £170,000 better off in retirement too.
“There is still a significant proportion of people in the UK who are not saving enough for retirement and utilising this quirk in the system could help them achieve their retirement aspirations,” says Shaun Moore, tax and financial planning expert at Quilter.