The changes, which came into effect on 6 April, mean that claiming child benefit is now worthwhile where the highest earner in a household is paid up to £80,000 a year. The tax charge previously applied where child benefit was received and somebody in the household earned more than £50,000 a year, but this lower threshold was changed to £60,000 in March, the Institute explained.
Families where the highest earner’s income is between £60,000 and £80,000 a year can also keep more of their child benefit following the changes to the upper threshold, as they will now pay less high income child benefit charge. Those that need to pay the charge do have to complete a self assessment tax return.
From 6 April 2024, child benefit is £25.60 weekly for the eldest child and £16.95 per week for each additional child.
Caroline Miskin, ICAEW Senior Technical Manager, Digital Taxation, said:
“This is a good opportunity for parents who had previously decided that they’d rather forego child benefit than deal with the high income charge to reconsider their decision, as increased income thresholds announced at the Budget mean that they can keep more of the money.
“The Government estimates that 180,000 parents who currently don’t claim child benefit stand to gain, so the onus is on parents to take action to avoid missing out. We recommend that claims are made using HMRC’s app, which is the most efficient way to claim and usually means faster payment.”
Under the old rules, some parents with a high earner in their household had chosen not to claim child benefit to avoid having to pay the high income child benefit charge, which clawed back the benefit at the rate of 1% for every £100 of income between £50,000 and £60,000. For those who earned £60,000, all child benefit was therefore repaid under the charge.
For example, a parent with two children could have received child benefit of £2,075 in 2023/24 and will be entitled to receive £2,213 in 2024/25. However, if the highest earner in this household had an income of £65,000 in 2023/24, the high income child benefit charge payable by them would have equalled the child benefit of £2,075.
By contrast, the new thresholds mean that in 2024/25 the charge for somebody earning £65,000 will only be £553, so the family will retain £1,660 or 75% of the benefit.
Claiming child benefit also gives a class 3 national insurance contributions credit, which means that a parent claiming the benefit for a child under 12 will build entitlement to a state pension.
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CONTACT: ICAEW media office stephen.froome@icaew.com or 07970 402 073