- A parent of one child on £60,000 who gets no child benefit currently will get £1,331.20 a year from April…
- …while a parent of two children will get £2,212.60 a year from April
- Full reform of the child benefit system is still needed
Laura Suter, director of personal finance at AJ Bell, comments:
“The decision to finally raise the threshold for child benefit is a big boost to higher-rate taxpayer parents. Someone earning £60,000 a year who currently gets no child benefit thanks to the high-income charge will now get the full child benefit each year. For a parent of two children that represents a total of £2,212.60 a year from April – a decent boost for families.
“The increase to the threshold doesn’t quite go as far as raising it in line with inflation – it would have needed to increase to £65,000 to do that. But the fact that it’s withdrawn at a slower pace means families keep more of the benefit as their earnings grow.
“The child benefit system has been ripe for reform for years. So many families have hit the high income charge, and as a result the number of families getting child benefit payments has dropped to its lowest level since records began, with the continual freeze on the threshold hitting more and more parents. According to the latest figures, a total of 683,000 families opted out of getting the payments, accounting for 1.05 million children. If these families had been eligible they could have claimed £1.15 billion in additional support.
“The move to assess child benefit based on a couple’s earnings makes sense, as currently the system punishes single earners. Currently, a sole earner on £60,000 gets no child benefit while two earners each on £49,000 will get the full benefit. Under the new system a sole earner on £80,000 will get no child benefit while two workers on £59,000 will get the full benefit.
“However, the government has kicked the can down the road on sorting out those thorny issues – saying it will consult and then implement in two years’ time. There’s no doubt that it’s a huge administration task for HMRC to assess couples on their household income rather than sole income, meaning there is no easy fix.
“This recent change, coupled with plans to allow parents to claim for missing National Insurance credits and allowing them to do so online all feels like fiddling at the edges of a broken system. With an election looming and parents crying out for more help with childcare support, it feels like the time to dismantle the child benefit system and rebuild it with a less complicated, more common-sense approach that works for families.”
How the high-income charge works:
Currently, if either you or your partner earns over £50,099, you’ll lose some of the child benefit on a sliding scale until one of you earns £60,000 – at which point you’re not eligible for any child benefit.
You re-pay the benefit at a rate of 1% of the benefit amount for every £100 you earn over that £50,000 threshold. It means if you earn £55,000, you lose 50% of the benefit – because you’re £5,000 over the limit, and at a rate of 1% per £100, that equals 50%. The exact amount of money you lose depends on how many children you’re claiming for.
From April that ratio will change so that you lose 1% of the child benefit amount for every £200 you earn over the new threshold of £60,000, meaning you lose child benefit at a slower rate than currently. It means that someone earning £70,000 will lose 50% of the child benefit they’re entitled to, while someone on £75,000 will lose 75% of the child benefit amount.
