The Child Benefit thresholds have changed. Here’s what this could mean for you
11/06/2024In the 2024 Spring Budget, the chancellor announced crucial changes to the Child Benefit thresholds. Find out what this change could mean for you
Raising a child is one of the most expensive life adventures. Figures from Child Poverty Action Group show that in 2023, the cost of raising a child to 18 was £166,000 for a couple, and £220,000 for a lone parent.
This is no doubt why the government offers financial assistance in the form of Child Benefit. The payments you receive from Child Benefit are designed to help you afford the costs of child-rearing and can be hugely valuable for parents, especially if you’re taking time out of work to care for your little one.
Crucially, during the Spring Budget in March, the chancellor made changes to key Child Benefit thresholds. He also outlined plans for further changes down the line.
So, read on to discover how Child Benefit works and what these changes could mean for you.
Child Benefit offers valuable financial support when you’re raising children
You can start claiming Child Benefit as soon as your child is born. Your payments will also be backdated up to a maximum of three months if you don’t claim straightaway. You’ll need to have registered the birth to be eligible for Child Benefit.
In the 2024/25 tax year, you’ll receive £25.60 a week for an eldest or only child. For each additional child, you’ll receive £16.95 a week.
This is usually paid directly into your registered bank account every four weeks, usually on a Monday or a Tuesday.
The Child Benefit high earnings threshold has been increased for 2024/25
However, while Child Benefit can be so useful, it’s important to be aware that households with at least one high earner may see their Child Benefit payments reduced. This is because you or your partner may be subject to the High Income Child Benefit Charge.
This charge sees high earners have to pay back some or all of the money they receive from Child Benefit if their “adjusted net income” exceeds certain thresholds. This is your total taxable income before any personal allowances and less tax relief, which might include elements such as:
- Pension contributions
- Charitable donations made through Gift Aid
- Trading losses if you own a business.
Previously, the High Income Child Benefit Charge kicked in if your adjusted income exceeded £50,000. At that point, you would effectively see your payments reduced by 1% for every £100 you exceeded the threshold, as you would have to pay this money back. So, if you earned £60,000 or more, that would mean you had to pay back everything you received from Child Benefit.
But, from April 2024, this threshold was raised to £60,000 adjusted net income, tapering out fully at £80,000 instead. So, if you previously had to pay back what you received from Child Benefit, you may no longer have to do so.
Crucially, this threshold is for individuals, not a household. That means if either you or your partner have earnings in excess of the High Income Child Benefit Charge, you will usually see the charge applied.
So, for example, if one of you has an adjusted income of £65,000, you’ll have to pay back some of your Child Benefit payments. But, if you both have an adjusted income of £59,000, you won’t pay the charge at all.
There are further plans to change this to a household system in future. But for now, it only takes one of you to exceed the threshold to see your Child Benefit payments reduced.
Reducing your adjusted net income could help you remain below the threshold
Knowing that you’ll face a charge if you claim Child Benefit can make it considerably less useful to you. But, you may be able to make better use of it if you reduce your adjusted net income.
One way you could do this is by making additional contributions to your pension. As money paid into your pension is subtracted from your adjusted income, making contributions into your pot could move you below the High Income Child Benefit Charge thresholds.
Furthermore, as a higher- or additional-rate taxpayer, you could claim further tax relief on these contributions, adding an extra incentive to pay into your pension. This assumes you have a sufficient pension Annual Allowance to make contributions.
Alternatively, you could make charitable donations that reduce your adjusted income. However, bear in mind that you won’t personally benefit from this wealth, whereas putting it into your pension at least means you’ll be able to access it in later life.
It may still be worth claiming Child Benefit if you exceed the thresholds
If your earnings mean that your payments taper away entirely and you can’t use any methods to sufficiently reduce your adjusted income, you might think there’s no point in claiming Child Benefit at all.
Yet, this isn’t necessarily the case because you may still receive credits on your National Insurance (NI) record if you’re out of work while raising a child.
When you apply for Child Benefit and your child is under 12, you automatically receive a credit on your NI record. This ensures that you don’t have gaps in your NI record and subsequently miss out on State Pension payments in future.
Furthermore, these credits can be transferred to your spouse or partner if you don’t need them. And, you can also apply for them to be transferred to another adult who cares for your child, such as a grandparent, while you return to work.
This is known as a “specified adult childcare credit” and can only be transferred if you as the parent are claiming Child Benefit.
So, while you might have to pay back some or all of your payments, it can still make financial sense to claim Child Benefit.
Get in touch
Need help organising your wealth for you and your family? Get in touch with us at Douglas White Financial Planning.
Email info@douglaswhiteltd.com or call 0151 345 6828 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
Our free quarterly newsletter keeps you up to date on the financial news which affects you.