Financial Planning & Child Benefit: An Update

Child benefit or family allowance, as it’s sometimes called, gives you extra financial support if you’re responsible for bringing up children. In the 2024/25 tax year, as a parent or guardian you will get:

• £25.60 a week for the eldest or only child
• £16.95 a week for any other children

You can claim if your children are under the age of 16 or under the age of 20 if they are in certain types of education or training. There’s no limit as to how many children you can claim for.

Importantly, it also gives you national insurance credits.

What are the changes in Child Benefit? 

As of 6 April 2024, the threshold to start paying back child benefit increased from £50,000 to £60,000. And the higher limit, when the benefit is removed completely, moved from £60,000 to £80,000.

Child benefit has traditionally been based on the income of the highest earner in the household meaning single-parent or sole/main breadwinner families are unfairly penalised.

A household with two parents each earning £60,000, earning a total of £120,000 would get the full amount of child benefit, whereas a household with one parent earning £60,000 would get their child benefit reduced and cut altogether once they earned £80,0000.

To address this, Jeremy Hunt announced a consultation in his Spring Budget 24 to allow HMRC to collect information about all the adults in a child’s house. This will mean that from April 2026, child benefit claims will be based on total household income instead of the highest earner’s wage.

How does the high-income benefit charge work?

If you and/or your partner each earn less than £60,000 a year, you can claim for the full amount of child benefit.

But if either of you earns more than this, you’ll have to repay some or all of the benefit back through the high-income child benefit charge (HICBC):

• You pay back 1% of your child benefit for every £200 earned over £60,000
• This means at £70,000 you’ll pay back 50% of the payments
• Once you or your partner earn £80,000 or over, the charge cancels out all the child benefit

You can choose to claim the benefit and repay it in full at the end of each year through your self-assessment form or register for it but not claim it. You’ll need to do this even if you are employed and earning through PAYE.

How does child benefit affect National Insurance credits?

You automatically get National Insurance (NI) credits, which count towards your state pension, if you claim child benefit for a child under the age of 12.

These credits are important as they can fill any gaps in your NI record. Perhaps there were periods where you didn’t work so that you could bring up your family or where you didn’t earn enough to pay NI contributions.

This can have implications later on as missing years in your national insurance record mean your state pension could be reduced.

That’s why it’s advisable to fill in the child benefit claim form and get the NI credits, even if you opt out of getting payments. And it also means your child will automatically get an NI number when they turn 16.

What action to take?

If you earn less than £12,570 a year, you should claim child benefit in your name because you don’t make national insurance contributions below this threshold.

If you or your partner’s income is above the £60,000 threshold for full child benefit, you can choose to:

• Receive the benefit and repay any charge at the end of each year through your self-assessment tax return, or
• Sign up for child benefit but opt out of receiving it, and not pay the tax charge

If you or your partner earn above £80,000, you can:

• Receive the benefit and repay it in full at the end of each year through your self-assessment tax return, or
• Formally opt out but if the other one in the partnership earns too little to pay national insurance, make sure this is registered with HMRC so they keep their national insurance credits

How to avoid the high-income child benefit charge

Don’t get caught in the child benefit trap. Make sure you’re not earning more than you thought. Remember, even if your salary is less than £60,000 you could be earning more than the threshold when you add work benefits such as private medical insurance.

It’s important to do some proactive financial planning. You could take steps to reduce your taxable income by paying more in pension contributions, making cash gifts to charity under Gift Aid or leasing a car through your company’s salary sacrifice scheme if they run one.

Pension contributions

If pension contributions made through a PAYE scheme bring you under the threshold, you won’t need to complete a tax return.

However, if you make personal pension contributions and charity donations that reduce your income below £60,000 you will need to complete a tax return. HMRC wouldn’t be aware of these so would base its calculations on the higher figure submitted by your employer.

Penalties

Make sure you tell HMRC if your circumstances change and you become liable for the high-income child benefit charge. Things that could tip you over the threshold could include a pay rise, a work bonus, a new job or a new live-in partner.

Be aware you could face a fines of the tax owed plus interest if you don’t notify HMRC or submit an inaccurate tax return.

Claiming even if over the threshold    

It’s worth claiming child benefit if you or your partner earns more than £60,000 threshold, even if you have to give all the money back – or worth at least registering for it. This gives the low-earning or non-earning parent the opportunity to build up their national insurance contributions. And that way protects their eligibility for the full state pension.

Please do get in touch with one of the team if you’d like to discuss your financial planning in relation to the child benefit thresholds.