THE Chancellor has revealed huge changes to child benefit that will save thousands of mums and dads from an “unfair” tax charge.
Speaking in the commons Jeremy Hunt revealed reforms to the high income child benefit charge in a boost for parents.
Getty – ContributorCurrently anyone earning over £50,000 has to pay back some or all of their child benefit[/caption]
Mr Hunt unveiled a tax-cutting Spring Budget to put more money in workers’ pockets ahead of this year’s election.
As it stands, you may have to pay the high income child benefit charge if you or your partner have an individual income that’s over £50,000.
This means you have to pay back 1% of your child benefit for every £100 of income earned over the £50,000 threshold.
But The Chancellor has confirmed in today’s announcement that from April this will be increased to £60,000 to ensure fewer parents are hit by the charge.
Not only that but the top of the taper at which it child benefit is withdrawn is rising from £60,000 to £80,000.
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.”
The Chancellor has also confirmed that the government will consult on moving the high income child benefit charge to a household-based system to be introduced by April 2026.
At the moment full child benefit is withdrawn when one parent earns over £50,000 a year.
This means two parents earning £49,000 a year receive the benefit in full but a household earning a lot less than that does not if just one parent earns over £50,000.
By converting to a household based system, it would mean parents aren’t caught in the tax trap unnecessarily.
These reforms are due to the tax system being “confusing and unfair” in its current state, Mr Hunt said.
Mike Ambery, retirement savings director at Standard Life, has 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.
Consumer champion Martin Lewis has called for changes to to the charge, which he says “unfairly penalises single-income families”.
In a letter to the Chancellor, he said if the issue was addressed in the budget, he thinks it would be a “very popular measure”.
During an appearance on Good Morning Britain, Martin said The Chancellor could look at moving the thresholds to reduce the number of people impacted by the charge.
He said: “What he could do that would take many people out of it is simply increase the starting threshold and move it from £50,000 to £60,000.
“While that would not fix the unfairness, it would reduce the number of people caught by the unfairness.”
Child benefit
Everything to know about child benefit:
How much is child benefit and when does it stop?
How long does child benefit take to claim and is it means-tested?
What age do child benefits stop and can I claim for a third child?
Are child benefit payments going up and how much more will I get?
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.
Are you missing out on benefits?
YOU can use a benefits calculator to help check that you are not missing out on money you are entitled to
Charity Turn2Us’ benefits calculator works out what you could get.
Entitledto’s free calculator determines whether you qualify for various benefits, tax credit and Universal Credit.
MoneySavingExpert.com and charity StepChange both have benefits tools powered by Entitledto’s data.
You can use Policy in Practice’s calculator to determine which benefits you could receive and how much cash you’ll have left over each month after paying for housing costs.
Your exact entitlement will only be clear when you make a claim, but calculators can indicate what you might be eligible for.
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 the 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.
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.
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