When Jeremy Hunt stood up in Parliament on 6thMarch 2024 to deliver his Budget he made some changes to Child Benefit, and specifically the High-Income Child Benefit Charge. Campaigners had long argued for change given the unfairness as to how this was applied, and Hunt announced plans to reform the Charge even further. However, due to the complexity of this and the reform needed to HMRCs tax system, any further changes will be a few years down the line, if they ever materialise at all.
Child benefit is paid to anyone who is responsible for bringing up a child under the age of 16, or age 20 if they stay in approved higher education (A levels, Scottish Highers, NVQs, traineeships in England and some others). The rate it is paid at is £25.60 per week for the first child and then £16.95 per week for every other child and is paid every 4 weeks. There is no limit to the number of children that can be claimed for.
As long as both parents have adjusted net income (that is, income from all sources including salary, rent, interest etc.) below £60,000 then Child Benefit is paid in full, though only one parent can claim. This is an improvement as to how it was before 6thApril 2024, when the limit was set at £50,000.
If either parent has adjusted net income above £60,000, then 1% of Child Benefit is lost for every £200 their adjusted net income is above this limit. This means that Child Benefit is fully lost when one parent’s adjusted net income reaches £80,000. Again, this is an improvement from before when the upper limit was £60,000, so a lot more people are now eligible to receive at least some form of payment.
You have probably worked out by now how this system can be deemed to be unfair. You could have a situation where one parent is working and earning £80,000, while the other is a stay at home mum or dad with no earnings, and they receive no child benefit. On the other side, you could have both parents earning £60,000 each with a household income of £120,000 (£40,000 more than the previous family), and yet they would be eligible for maximum child benefit. The chancellor recognised this and announced he is looking into calculating the entitlement to child benefit based on household income, but as the UK doesn’t do this it will take many years to implement, if it ever sees the light of day.
There is however some good news if you earn over £60,000. As the entitlement to Child Benefit is based on adjusted net income, you can make use of pension contributions (and other salary sacrifice schemes, such as Phoenix SIP or EV car scheme) to reduce your adjusted net income. This allows you to increase your entitlement to Child Benefit.
Pension contributions can be extremely powerful if you fall in this range. For example, if you earned £80,000 and had 2 children (with a partner earning less) you are currently not entitled to any Child Benefit. However, if you were able to pay £10,000 into your Phoenix pension over the course of a year, you would claw back £1,106 of Child Benefit. This is on top of 40% income tax relief (more in Scotland, particularly with the introduction of the Advanced tax rate band), plus 2% National Insurance savings. Therefore, for you to put £10,000 into a pension it has actually only cost you £4,694 (less than £400 a month) to do so, and even less than this in Scotland.
Our final point on Child Benefit is to make sure that, if you or your spouse are or become non-earners in the future to look after children while the other earns over £80,000 (i.e. so you are not eligible for Child Benefit payments), the non-earning spouse still claims Child Benefit. You can claim Child Benefit while simultaneously asking for it not to be paid. The reason to do this is claiming Child Benefit gives you National Insurance credits (until your youngest child is 12) to build up your entitlement to the State Pension – not doing so can be costly in retirement.
