THE PARENT TRAP
Huge child benefit changes to save thousands of parents from ‘unfair’ tax charge, Jeremy Hunt confirms
Right now anyone earning over £50,000 has to pay back some or all of their child benefit
HUGE changes to child benefit will save thousands of mums and dads from an "unfair" tax charge, it was revealed today.
In his giveaway Spring Budget, Chancellor Jeremy Hunt outlined reforms to the high-income child benefit charge in a major boost for parents.
2
2
In his speech on Wednesday, the Chancellor described the benefit as a "lifeline" that helps parents with many additional costs.
Child benefit is paid to parents to help with the costs of childcare.
Currently, parents can claim £24 per week for their first or only child and an extra £15.90 a week for any additional children.
But if either parent or carer starts earning over £50,000, they have to start paying the high-income child benefit charge.
Spring Budget at a glance
- Fuel duty will be frozen and the 5p cut extended for a year
- Alcohol duty will be frozen until February next year
- National insurance was cut by an additional 2p
- An extension of the Household Support Fund for the fifth time
- Households on Universal Credit will get an extra year to repay emergency loans from the Government
- A new tax on vapes, which will cause prices to rise
- A one-off new tax on fags to ensure they are more expensive than the electronic alternative
- The high income child benefit charge was raised from £50,000 to £60,000
This means you have to pay back 1% of your child benefit for every £100 of income earned over the £50,000 threshold.
Read more SPRING BUDGET
The Chancellor today confirmed that from April the threshold at which parents have to pay the charge will be increased to £60,000.
As it stands, when you reach a £60,000 salary, you have to repay the full amount of child benefit received.
From April, though, The Chancellor announced this will go up to £80,000 to ensure fewer parents are caught out.
It means that parents will repay 1% for every £200 of income earned over these new thresholds.
Most read in Money
Hundreds of thousands of parents will save an average of £1,260 next year.
But he acknowledged that the existing system could be "confusing and unfair" because of how single parents are affected.
Budget highlights: Brits boosted by £450 tax cut & child benefit overhaul as Hunt freezes alcohol and fuel duties in giveaway Budget
Speaking in the Commons, Mr Hunt said: "That means no one earning under £60,000 will pay the charge, taking 170,000 families out of paying it altogether.
"And because of the higher taper and threshold, nearly half a million families with children will save an average of around £1,300 next year."
In a further boost, Mr Hunt said the government will look to change the system to a household-based one by April 2026.
At the moment, child benefit begins being withdrawn when one parent earns over £50,000 a year.
This means two parents earning £49,000 a year - totalling £98,000 in the household - each receive the benefit in full.
Whereas a household earning a lot less than that does not get the full payment if just one of the parents earns over £50,000.
By converting to a household-based system, it would mean parents aren't caught in the tax trap unnecessarily.
But this change will take time as they are complicated measures.
These reforms are due to the tax system being "confusing and unfair" in its current state, Mr Hunt said.
Consumer champion Martin Lewis has called for changes to the charge which he says "unfairly penalises single-income families".
Writing on X, formerly known as Twitter, Martin welcomed today's announcements and said it had been widely called for by his followers.
Mike Ambery, retirement savings director at Standard Life, also welcomed the child benefit changes.
He said: "The tax system is awash with cliff edges and tapers which not only create a great deal of complexity but also disadvantage certain groups of people.
"Chief among these is the high-income child benefit charge and it’s welcome news that the Chancellor has decided to recognise the unfairness of the current system."
Mike added that taking into account joint household income is a "common sense approach" which ensures households with two incomes of up to £100,000 aren’t given preferential treatment over one with an earner whose income is just over £50,000.
"In the interim, raising the threshold to £60,000 will help - child benefit can be worth thousands of pounds a year to some families and today’s move could make a real difference in those household where budget are tight after two years of rising prices," he said.
Mr Hunt had previously been thought to have shelved any reform to the high-income child benefit charge.
What is the high-income child benefit charge?
If either parent or carer starts earning over £50,000, they have to start paying the high-income child benefit charge.
This means you have to pay back 1% of your child benefit for every £100 of income earned over the £50,000 threshold.
Once you reach £60,000 of yearly income you have to repay the full amount of child benefit received.
Parents have been caught out by the complicated rules and extra charges and landed with bills for thousands of pounds.
It's up to parents to notify HMRC if they are liable for the charge and they must file a self-assessment tax return to pay it.
What is child benefit and who is eligible?
Child benefit is paid to parents to help with the costs of childcare.
Payments are usually made every four weeks, plus by claiming child benefit you also get National Insurance credits that count towards your State Pension.
Currently, parents can claim £24 per week for their first or only child - £96 a month and £1,248 a year.
But, from April the rate for your eldest or only child will go up to £25.60 a week - equating to around £102.40 a month or £1,334.86 a year.
For any additional children, they can claim an extra £15.90 a week per child - £63.60 a month and £826.80 a year.
And, from April for every other child, you'll get £16.95 a week, which is £67.80 a month and £883.82 per year.
You normally qualify for child benefit if you live in the UK and are responsible for a child under 16.
Parents can also claim support for a child under 20 if they are in approved education or training.
When two or more people share the responsibility of caring for a child, it can only be claimed by one person.
You'll be responsible for a child if you live with them or you are paying at least the same amount as child benefit towards looking after them.
This might mean you are paying the equivalent amount of child benefit on food, clothes or pocket money.
You should bear in mind, eligibility changes if a child goes into hospital or care and if your child starts to live with someone else.
Usually, you get child benefit for eight weeks after your child goes to live with a friend or relative - as long as they don't make a claim.
But it can continue for longer if you make contributions to your child's upkeep.
Foster parents can also claim child benefit, as long as the council is not paying anything towards their accommodation or maintenance.
Legal guardians or parents adopting a child can also apply for the benefit, but the child has to be living with them.
You will only be able to claim for a short period if you leave the UK, for example, if you go on holiday or for medical treatment.
For anyone not sure about eligibility, you can contact the Child Benefit Office.
READ MORE SUN STORIES
Meanwhile, here are four ways to avoid the child benefit tax trap – but still gain £1,248 a year in free cash.
Plus, here are 17 big money changes in 2024 and what they mean for you – including a £1,800 pay rise for millions and free childcare.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
Plus, you can join our Facebook group to share your tips and stories.
Topics