Should you claim Child Benefits?

Childcare is undoubtedly a significant expense for any family. Despite child benefits being readily available to anyone who is responsible for a child up until the age of 20 (so long as they remain in approved education or training), many parents do not claim at all. This is often due to uncertainty as to whether it’s really worth claiming child benefits as a result of the rules that were introduced in 2013, which introduced a high-income benefit charge. This has now since been updated in the most recent Spring 2024 Budget Announcement by the Chancellor.

Below, we explain how claiming child benefits may affect different types of family situations, as well as provide advice on how to remedy any adverse outcomes that may arise.

Overview of the changes to child benefit

In the spring budget announcement, Chancellor Jeremy Hunt announced there would be an increase in the amount you can earn before you start to lose child benefits. The increase would come into effect as of 6th April 2024. The changes aim to provide relief and clarity for families that are recipients of child benefits.

Previously, if one parent earned more than £60,000 the child benefit would be taken away completely, now the threshold has been raised to £80,000 allowing more flexibility.

Furthermore, the reduction in child benefit only begins when one parent earns over £60,000, up from the previous threshold of £50,000.

The main rate of payment will also be increased from £24 to £25.60 per first or only child and £16.95 for each additional child, up from £15.90.

What are parents entitled to with child benefits?

First, however, let us explain what child benefits actually offer. Child benefits are money that can be paid to one parent (or an adult who is responsible for caring for a child) and are intended to help with household costs.

You can receive £25.60 per week for your first child and £16.95 for all other children you have (there is no maximum number of children you can claim child benefits for).

You are entitled to these child benefit payments until your child is 16 years old, or up until they are 20 if they remain in approved education or training.

What are the rules and how do they complicate claiming child benefits?

The first rule, as mentioned above, is that the money will only be paid to one parent. This can cause complications for separated couples who share childcare. The second rule affects those where either you or your partner earns an income of over £60,000. Once you or your partner earn up to this amount you will be liable to the high income child benefit charge (HICBC) which means you are required to pay back 1% of the child benefit amount received for every £200 you earn over £60,000. Where you or your partner earns more than £80,000 then 100% of the child benefit payments received will have to be repaid as income tax via a personal tax return. This is one reason why many couples choose not to claim child benefits.

How child benefits will affect different types of families

In the scenarios below we will assume there is only one child per household unless otherwise stated. If you have more than one child, it will simply mean that you can claim £16.95 more for every additional child and does not change whether or not someone will be liable to pay tax.

• Couples with varying incomes, where one partner earns £30,000 and the other earns £60,500: Whoever earns over £50,000 will need to pay back 1% of the child benefit for every £1200 earned over £60,000. This must be completed through a personal tax return form.

• Dual Earning couples, a couple where both partners earn £45,000: Despite having a total household income of over £60,000, there is no need to repay any amount of child benefits received. This is because neither partner earns an income of over £60,000 individually.

• Mixed income couples, A couple where one partner earns £80,000 and the other earns £10,000: The full amount of child benefits received will need to be repaid. This will need to be done through a personal tax return and should be completed by the partner earning £80,000.

• Separated parents, where one earns £63,000 and the other earns £20,000: Child benefits can only be paid to one person, any potential tax liability incurred will be dependent on who is primarily caring for the child and their income. If the person earning £20,000 is claiming child benefits, they will be entitled to keep the full amount – whereas if the person earning £63,000 is the primary carer and claiming the benefits they will attract the HICBC.
  
  Where the child is living with the person earning £20,000 but the person earning £53,000 is paying for the majority of the costs of childcare, they may choose to receive the child benefits themselves.
  
  This is possible so long as the other parent does not claim child benefits and that the costs they are contributing towards the child’s maintenance exceed the amount they would receive in benefits (they cannot be seen to be profiting from receiving child benefits). It is important to bear in mind that they will still be liable to pay the HICBC.

• A single parent earning £18,000 who lives with their parents and one of their parents earns £56,000. In this scenario, no one will face HICBC because HMRC is only concerned where a partner is earning more than £60,000.

• A single parent who earns £35,000 has a child, and would like their partner who earns £67,000 to move into their household. Once both parties move in together and live as one household, the person earning over £60,000 will need to pay HICBC even if it is not their biological child. If they earn over £80,000 then they will need to repay the full amount of child benefits received.

• Two single parents each have their own child, and both earn £38,000. They plan to move in together. Once they become one household, they can continue claiming child benefits but only through one person. That person will then be seen as caring for two children so would be able to claim an additional £16.95 but they would not be able to claim two sets of £25.60 each as they would have done previously. As neither earns over £60,000 there is no HICBC to be paid.

Is claiming child benefits worthwhile?

At first glance, for high earners, it may not seem that beneficial to claim child benefits. However, if we use the example of someone who earns £65,000 in a couple and their partner is staying home to raise the child. They would trigger the high-income child benefit charge and have to pay 1% for every £200 they were over the limit.

The higher earners’ income is £5,000 (25x £200) over the limit, so they would need to pay 25% of the child benefit back. This would equate to £6.40 per week needing to be paid back and in total £332.80 per year but they would still be receiving £19.20 for their first/only child per week and £998.40 per tax year.

This money could be put into a junior ISA or savings account which would earn interest.

Another reason it is worthwhile to register for child benefits (even if you choose to opt out of receiving payments to avoid paying the tax) is that by doing so, you also automatically qualify for National Insurance credits. You need to have paid 35 full years’ worth of National Insurance Contributions (NIC) in order to be eligible to receive the full state pension and NIC credits will help fill in any missing years should you take time off work to care for your children.

How to avoid paying back child benefits if you’re a higher earner

For higher earners who would like to claim child benefits, there are ways to help you reduce your HICBC or eliminate it altogether.

By far the most effective strategy is to pay into your pension fund as this will reduce your taxable earnings. If you earn £60,000 and pay £5,000 into your pension, then you will only need to repay a quarter of the child benefits amount received. Should you choose to pay £5,000 you would not have anything back.

We would highly recommend considering this option, especially where your employer offers a pension contribution match option.

Alternatively, another route that will achieve the same outcome is to donate to charitable organisations through gift aid.

To help calculate how much child benefit you’ll receive and/or how much HICBC you or a partner will have to pay, you can use the government calculator.