HUGE changes to child benefit will save thousands of mums and dads from “unfair” tax, it emerged today.
In his award-winning Spring Budget, Chancellor Jeremy Hunt described reforms to high-income child benefit as a major boost for parents.
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Currently anyone earning more than £50,000 must pay back some or all of their child benefitCredit: Getty – Contributor
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The change in the census of the child allowance will take place in April
In his speech on Wednesday, the chancellor described the allowance as a “lifeline” to help parents with many additional costs.
Child allowance is paid to parents to help with childcare costs.
Currently, parents can claim £24 a 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 more than £50,000, they must start paying High Earning Child Benefit.
The spring budget at a glance
This means you have to pay back 1% of your child benefit for every £100 of income earned above the £50,000 threshold.
The chancellor confirmed today that from April the threshold at which parents must pay compensation will be increased to £60,000.
As it stands, once you reach £60,000 in salary, you must pay back the full amount of child benefit received.
However, from April the chancellor announced it would rise to £80,000 to ensure fewer parents were caught out.
This means parents will pay back 1% for every £200 of income earned above these new thresholds.
Hundreds of thousands of parents will save an average of £1,260 next year.
But he admitted the current system could be “confusing and unfair” because of how it affects single parents.
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Speaking in the Commons, Mr Hunt said: “This means no-one earning below £60,000 will pay the levy, leaving 170,000 families out of paying.
“And because of the higher taper and threshold, almost half a million families with children will save an average of around £1,300 next year.”
As a further boost, Mr Hunt said the government would aim to change the system to a household-based system by April 2026.
Currently, Child Benefit starts to stop when one parent earns more than £50,000 a year.
This means that two parents earning £49,000 a year – totaling £98,000 in the household – each receive the benefit in full.
While a household earning much less than that does not get the full payment if only one parent earns more than £50,000.
By moving to a household-based system, this would mean that parents are not unnecessarily caught in the tax trap.
But this change will take time because these are complicated measures.
The reforms are because the tax system is “confusing and unfair” in its current state, Mr Hunt said.
Consumer rights campaigner Martin Lewis has called for changes to the charge which he says “unfairly penalises single income families”.
Writing on Xu, formerly known as Twitter, Martin welcomed today’s announcements and said his followers had been asking for it widely.
Mike Ambery, director of retirement savings at Standard Life, also welcomed the changes to child benefit.
He said: “The tax system is riddled with steep edges and bottlenecks that not only create great complexity but also disadvantage certain groups of people.
“Chief among them is the Child Benefit allowance for high earners and it is welcome news that the Chancellor has decided to recognize the unfair current system.”
Mike added that taking joint household income into account is a “common sense approach” which ensures that households with two incomes of up to £100,000 do not get preferential treatment compared to one with an income of just over £50,000.
“In the meantime, 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 to those households whose budgets are tight after two years of price rises,” he said.
Mr Hunt was previously understood to have given up on any reform of child benefit on high incomes.
What is the Child Benefit allowance for high earners?
If either parent or carer starts earning more than £50,000, they must start paying High Earning Child Benefit.
This means you have to pay back 1% of your child benefit for every £100 of income earned above the £50,000 threshold.
Once you reach £60,000 in annual income, you must pay back the full amount of child benefit received.
Parents were caught off guard by complicated rules and extra costs and were left with bills for thousands of pounds.
It is up to parents to tell HMRC if they are responsible for the charge and need to file a self-assessment tax return to pay it.
What is child benefit and who is entitled to it?
Child allowance is paid to parents to help with childcare costs.
Payments are usually made every four weeks, and when you apply for Child Benefit you also get National Insurance Credits which count towards your State Pension.
Currently, parents can claim £24 a 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 rise to £25.60 a week – which is around £102.40 a month or £1,334.86 a year.
For additional children, they can claim an extra £15.90 per week per child – £63.60 per month and £826.80 per year.
And from April for every other child you will get £16.95 a week, which is £67.80 a month and £883.82 a year.
You are usually eligible for Child Benefit if you live in the UK and are responsible for a child under the age of 16.
Parents can also claim support for a child under the age of 20 if the child is in approved education or training.
When two or more people share the responsibility of caring for a child, only one person can take it.
You will be responsible for the child if you live with them or if you pay at least the same amount as child benefit to look after them.
This may mean you pay the equivalent amount of child benefit for food, clothing or pocket money.
You should bear in mind that the right changes if the child goes into hospital or care and if your child starts living with someone else.
You usually get child benefit for eight weeks after your child goes to live with a friend or relative – until they apply.
But it can take longer if you’re making child support contributions.
Foster parents can also claim child benefit, as long as the municipality does not pay anything for their accommodation or upkeep.
Legal guardians or adoptive parents can also apply for benefits, but the child must live with them.
You will only be able to make a claim for a short period if you leave the UK, for example, if you are going on holiday or for medical treatment.
Anyone who is not sure whether they meet the requirements can contact the Child Benefit Office.
In the meantime, here are four ways to avoid the Child Benefit tax trap – but still get £1,248 a year in free money.
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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Source: HIS Education