March 7, 2024 Budget Baby Boost – What the spring update means for parents
It has been a contentious issue for some time now, but following the Spring Budget of 2024 delivered by chancellor Jeremy Hunt, the level of earnings at which you start to repay child benefit has been raised from £50,000 to £60,000. Therefore, for every £200 which you earn over £60,000 you repay 1% of the child benefit that you have claimed. Child benefit will be fully clawed back when one parent earns £80,000.
Example
Jeremy and Angela have 2 children. Jeremy earns £58,000 per year and Angela is a stay-at-home Mum who is claiming child benefit of £2,212.60 (new rates applied).
Under the current regime, Jeremy would be required to complete a self-assessment tax return and would have to repay 80% of the value claimed by Angela as his earnings are £8,000 over the High-Income Child Benefit Charge threshold (HICBC), resulting in £1,770.08 (£2,212.60 x 80%) being repayable.
This change comes into effect from 1 April 2024 along with a rise in the child benefit rates:
- Eldest or only child – £25.60 per week
- Other children – £16.95 per week
Using our example above, Jeremy would no longer be required to repay any of the child benefits due to the increase in the earnings threshold.
The chancellor also acknowledged that it was unjust that the HICBC was assessable on an individual basis and not on a household basis. We welcome plans to end this injustice by April 2026.
Mitigating the HICBC
If you are caught by the HICBC, there are ways which you can mitigate the amount which you have to pay back:
- Pension contributions,
- Trading losses from being self-employed or property loss relief,
- Charitable donations under Gift Aid
By deducting any of the above from your income, you can reduce the impact the HICBC has as it is based on your ‘adjusted net income’ (total taxable income minus the above reliefs).
Crucially, even if your earnings are over £80,000, it is still beneficial to register for child benefit and then opt out of claiming it, because it counts towards National Insurance (NI) credits for your state pension. You can elect who receives the credits and even transfer them.
Claiming child benefits also ensures that your child/children are registered to receive an NI number just before they turn 16.
Tax-Free Childcare
To further encourage and support parents to work there have been changes to Childcare Support.
As previously announced in the Spring Budget of 2023, there will be an increase in the number of free childcare hours for eligible working parents of children aged between nine months to three years. This is being introduced in phases over the next 2 years as follows:
- 15 hours a week for two-year-olds from April 2024
- 15 hours a week for nine-month-olds from September 2024
- 30 hours a week for all under 5’s from September 2025.
You may also be entitled to Tax-Free Childcare allowing you to claim up to £500 every 3 months for each child to assist with childcare costs with an approved provider, including nannies, and after-school clubs. The following conditions must be met:
- Your provider must be signed up to the scheme.
- You must be working 16 hours a week and being paid the National Minimum or Living Wage, or earning this from self-employment.
- Your child must be 11 or under and usually live with you, with access to the scheme ceasing on 1 September following their 11th birthday or 16th if the child is disabled.
- Neither you, nor your partner should have adjusted net income over £100,000 in the current tax year.
To be able to access this you will need to set up an online account with HMRC. For every £8 that you pay into the account, the government will pay £2 to pay your provider.
Should you find yourself affected by any of the issues above then the team at Elemental can provide you with advice and guidance to find the best solution for you and your family.
