Latest news with #HICBC
Daily Mail
30-04-2025
- Business
- Daily Mail
EXCLUSIVE Frozen tax thresholds will drag MORE people into child benefit tax trap
Thousands more families will face higher taxes by 2028 as higher wages and frozen thresholds mean they will reach the child benefit threshold, figures shared exclusively with This is Money reveal. Former Chancellor Jeremy Hunt raised the threshold at which the Government starts to claw back child benefit from £50,000 to £60,000, last year. He said that the change to the high income child benefit charge (HICBC) would mean 170,000 households fewer families would have to pay the higher marginal tax rate. However, new figures reveal frozen income tax thresholds and increasing wages will actually see more families affected. An additional 50,000 families will pay the HICBC by the 2028-29 tax year due to rising incomes, according to a freedom of information request by NFU Mutual. The Government claws back child benefit from households where the highest earner has an income above £60,000, and withdraws it completely when they earn over £80,000. Frozen income tax thresholds mean that any increase in wages will drag more people into paying higher tax, and also have to pay HICBC. The FOI shows that 376,000 families will pay HICBC tax by 2028-29, up from 325,000 in the last tax year. The total amount it raises will increase from £268million in 2024-25 to £384million within four years. While more families are set to be affected in the coming years, figures revealed with This Is Money last week showed that fewer households are currently having to pay the charge. In the 2023/24 tax year, 75 penalties for 'Failure to Notify' were issued, down from 7,007 the year before. The total value of the penalties fell from £4.5million to £45,443. The collapse in penalties suggests the threshold change has made a material difference and growing awareness may have prompted some parents to salary sacrifice into a pension to avoid the charge. However, the frozen tax thresholds will soon mean that more and more people are caught in the child benefit tax trap as they will earn between £60,000 and £80,000. If the highest earner in the household has an adjusted net income of more than £60,000, they have to start repaying child benefit at a rate of 1 per cent for every £200 of income over £60,000. Once their adjusted net income reaches £80,000 they must repay all child benefit received and at this stage many families simply opt out of receiving it. Sean McCann, chartered financial planner at NFU Mutual said: 'Many are still unaware of the need to inform HMRC once their income exceeds £60,000 and pay any child benefit tax charge due. 'There have been numerous cases where significant arrears have built up over several years, resulting in unexpected five figure tax bills. 'The onus is on the individual with the highest income in the household to pay any child benefit tax due, this can cause issues with couples who don't normally share details of their earnings with each other.' Since its introduction a decade ago, the HICBC has faced criticism for placing an extra burden on working parents, particularly single parents. A household with two parents each earning £59,000 - a total of £118,000 - will receive child benefit in full, while a household with a sole parent earning £60,000 would see some or all of the benefit withdrawn. Hunt had pledged to significantly reform the charge and consult to move to a system based on a household, rather than individual income by 2026. However, the Government quietly shelved the plans and will no longer proceed with the HICBC reforms. Instead, it has pledged to reduce the administrative burden by allowing affected families to repay the charge via PAYE from this summer, rather than completing a tax return. A Treasury spokesman said: 'It is right that we target child benefit at the families who need it most to ensure the sustainability of our public finances and protect our vital public services. 'We have taken the decisions to repair our public finances which has help us to get NHS waiting lists down and roll out free breakfast clubs through our Plan for Change.'
Telegraph
28-04-2025
- Business
- Telegraph
‘Can I really use my pension to keep my child benefit payments?'
Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Charlene, I've had a promotion, and I think my new salary will tip me over the child benefit limit this year. We've got two children that my wife currently claims for, and we haven't had to worry about it before. Does she need to stop claiming or reduce what we get directly with HMRC? Or wait to hear from them? A colleague mentioned that I can use pensions to claim back child benefit, but I'm not completely sure how that works? My new salary is £65,000 before my work pension payments. I've checked with my employer and I currently pay 4pc from my pay before tax, which my employer matches. They've said that my new role means I can get up to 6pc from them if I also pay in 6pc before tax. I'm happy to pay in more to my pension, but I'm not sure how it affects my child benefit or not? Can you help? Thanks, – Shaun Dear Shaun, Congratulations on your promotion. I'll start by running through the child benefit rules, and then use some examples to show how pensions can help you get the money back and boost your retirement savings at the same time. Child benefit is payable to households with children aged under 16, or under 20 if they remain in certain education or training. Parents registered for child benefit can also receive National Insurance credits, meaning they obtain qualifying years for the state pension. It also means your children will get a National Insurance number automatically in the three months before they turn 16, without having to apply for one. For 2025-26, the rates of child benefit are £26.05 per week for the eldest or only child, and £17.25 per week for other children. So, £2,251.60 over the year based on your two children. Since January 2013, a high-income child benefit charge (HICBC) has applied where child benefit is claimed and one or both parents earn have 'adjusted net income' above a certain threshold. I'll explain exactly what adjusted net income means later. The starting point for HICBC is now £60,000, and child benefit starts to be clawed back by the charge at a rate of 1pc for each £200 of income over the £60,000 threshold. Where one partner has income of £80,000 or more, the HICBC claws back all the child benefit. For example, a family where the breadwinner has an adjusted net income of £70,000 will have to pay back 50pc of the child benefit thanks to the HICBC. It can still be worth claiming child benefit where income is more than £80,000, due to the National Insurance benefits mentioned above. You can still claim but opt out of receiving the payments via the portal. In fact, HMRC statistics published on April 23 show 712,000 families did just that as at August 2024. People in between the limits can ask to receive the (full) payments and then pay any HICBC due after the end of the tax year via a self-assessment tax return. This is a particular hassle for people who don't usually need to file a return and can also easily be missed, risking large fines if charges aren't paid. However, part of the tax changes announced in the Spring Statement last month confirmed that employees will be able to report and opt to pay any HICBC directly through the PAYE system instead. Fingers crossed this will be possible from the summer How pensions can help You can use your pension to lower your adjusted net income and, in some cases, avoid the HICBC altogether. Adjusted net income is total taxable income less your own pension contributions and charity donations that qualify for gift aid. So, your earnings before tax, but also income like interest and dividends that you receive outside of tax wrappers like Isas. You've mentioned you'll earn £65,000 this year, before your own pension contributions of 4pc are deducted. Assuming no other income, your adjusted net income would be £62,400. But you could go further. Lowering your adjusted net income by another £2,400 before tax, would mean you avoid the HICBC, get the full value of child benefit for the year and boost your pension pot. Your employer has said they will match up to an extra 2pc pension contribution, which would cost only you £1,300 from your pay before tax but mean an extra £2,600 in your pot over the year thanks to the extra matched contribution on offer. Think of it as your money doubled, plus some of the child benefit back too. If you're able to put away a further £880 over the course of the year into your pension from your pay after tax (on top of the £1,300 mentioned above), automatic tax relief in your pension will boost this to £1,100, and also reduce your adjusted net income to £60,000, meaning your family keeps all of the child benefit. As a higher-rate (40pc) taxpayer, you could also claim an extra £220 on the £880 by contacting HMRC. It does involve diverting money into your workplace pension that you would have got after tax on your payslip. But an extra £3,700 in your pension pot for the year would actually cost you less than £1,170. This is once the tax relief on your own extra pension contribution is accounted for, along with the extra 'free' money your employer will put in and the value of the child benefit you won't have to pay back. I hope this explains the position and helps with your planning. With best wishes,
Daily Mirror
26-04-2025
- Business
- Daily Mirror
Urgent HMRC warning to anyone earning under £80k missing out on one benefit
HMRC has urged families to explore whether they are eligible for Child Benefit, as they are likely missing out on free money, here's everything your need to know British families are encouraged to check if they may be eligible for additional financial support from HM Revenue and Customs (HMRC) following recent threshold increases. As of April 6, 2025, Child Benefit payments across the UK have increased by 1.7%, enabling more Brits to claim financial assistance amid the rising cost of living. In the UK, parents and carers can claim Child Benefit, a form of financial assistance designed to help with the overwhelming costs of raising children. HMRC provides financial aid and pays a sum for each child under 16, or 20 if the child is in full-time education or attending an approved educational institution. Additionally, Child Benefit contributes to accumulating National Insurance credits, which in turn help enhance a person's State Pension. At present, Child Benefit provides £26.05 per week for a single child, totalling £1,354.60 per year. Any additional children will receive £17.25 per week, which equates to £897 per year. In other words, parents with two children will receive a total Child Benefit payment of £2,251.60 per year, and those with three children will receive a total of £3,148.60 per year. However, there's a cap on how much you or your partner can earn before losing child benefits. According to the High Income Child Benefit Charge (HICBC), benefits start to decrease if either of you earns above £60,000 and are completely eliminated when earnings reach £80,000 or more. Once the Child Benefit recipient earns more than £60,000, they will incur a tax charge. This is equal to 1 per cent of the total benefit claim received for every £200 earned over £60,000. This charge means that you will need to repay a portion of your Child Benefit through your tax return. You can register for Child Benefit 48 hours after registering your child's birth or once a child comes to live with you. The registration can be backdated for up to three months. According to new data released by HMRC, the number of families claiming Child Benefit in the UK has dropped to its lowest level since 2003, coinciding with the introduction of the HICBC. HMRC's most recent estimates cover the 2021/22 tax year, during which 390,000 individuals paid a total of £450 million of HICBC penalties and fees.. Shockingly, fines can be up to 30% of what you owe HMRC in Child Benefit payments, with late payment interest on taxes now sitting at 8.5%. This is the highest it has ever been. If you owe several years of payments, the amount you owe could become quite expensive, with reports of several parents being forced to repay multiple years' worth of benefits.
Daily Mirror
25-04-2025
- Business
- Daily Mirror
DWP state pension warning to parents as they could 'unintentionally' lose money
The warning comes from Hargreaves Lansdown as new data from HMRC revealed that 30,000 fewer families are claiming the extra monthly payments Parents have been issued a warning about opting out of claiming Child Benefit as it could have a major impact on their state pension. The warning comes from Hargreaves Lansdown as new data from HMRC revealed that 30,000 fewer families are claiming the extra monthly payments. According to the data, as of August 2024, 7.62 million families were claiming Child Benefit, which is 30,000 less than the year before in August 2023. The data revealed that 712,000 families chose to opt out of receiving payments. According to Hargreaves Lansdown, this is a decrease of 4% from the previous year and could be due to the raised High Income Child Benefit Charge (HICBC) thresholds. Since the introduction of the charge in 2013, the number of families claiming child benefit has been steadily decreasing. Under Child Benefit rules, you pay money back to HMRC at a rate of 1% for every £200 you earn over £60,000. If you earn over £80,000 and you'll need to pay back 100% of it - meaning you don't get anything. To pay back the benefit, you currently need to submit a self-assessment tax return. However, this is set to change this summer. If you don't want to pay the charge, you can opt out of Child Benefit payments by contacting the tax office. However, Hargreaves Lansdown has warned that this could mean parents miss out on National Insurance credits that go towards their State Pension. Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: said: 'It's an undeniable fact that fewer families have claimed Child Benefit since the charge was introduced back in 2013. Faced with the prospect of having to effectively repay a portion, or even all of the benefit, it's no wonder many parents decided not to bother claiming at all. "However, the law of unintended consequences loomed large here, as many didn't realise that by opting out, they were missing out on vital National Insurance credits that could be used towards their state pension." Under the current state pension rules, you need 35 qualifying years on your National Insurance record - some people may need more - to claim the full new state pension. You normally need 10 years to receive anything at all. Join Money Saving Club's specialist topics For all you savvy savers and bargain hunters out there, there's a golden opportunity to stretch your pounds further. The Money Saving Club newsletter, a favourite among thousands who thrive on catching the best deals, is stepping up its game. Simply follow the link and select one or more of the following topics to get all the latest deals and advice on: Travel; Property; Pets, family and home; Personal finance; Shopping and discounts; Utilities. You build up your National Insurance record through working; however, if you are not working, or not earning enough to pay National Insurance, you can claim National Insurance Credits, which help plug those years. If you claim Child Benefit, you receive National Insurance Credits if you are not working or earning less than £123 a week. If you opt out of Child Benefit, and are not working for periods of time, then you will not receive these automatic top-ups. This could leave you unknowingly reducing your National Insurance record for the state pension - meaning you could lower your state pension payments. Helen added: "Government did act, and parents were then able to sign up for the benefit and receive the National Insurance credit without actually receiving the money. The latest data shows over 700,000 families opted to do this and it is hugely positive that awareness of this option is growing. "The thresholds for HICBC have also been raised which means that fewer families will have a liability. However, it's vital that awareness continues to be raised of the importance of claiming Child Benefit for the sake of your state pension.'
Daily Mail
22-04-2025
- Business
- Daily Mail
EXCLUSIVE Penalties for failing to declare child benefit on tax return plummet as Government eyes changes
The number of child benefit penalties paid out plummeted by 99 per cent last year, according to new figures shared with This Is Money. Child benefit is available to all families, but the Government starts to claw it back from households where the highest earner has an income above £60,000, after Jeremy Hunt raised the threshold from £50,000 in his last Budget. Child benefit is then withdrawn completely once the highest earner makes over £80,000. Higher earners who do not opt out of payments need to pay a tax charge at the end of the tax year and declare it on their self-assessment tax return or face a penalty. Changes to the system mean that penalties collapsed by 99 per cent between 2023 and 2024, according to a Freedom of Information (FOI) request by wealth manager Quilter. In the 2023/24 tax year, 75 penalties for 'Failure to Notify' were issued, down from 7,007 the year before. The total value of the penalties fell from £4.5million to £45,443. With just 46 penalties issued so far in 2024/25, Quilter suggests that last year's fall was not a one-off. Holly Tomlinson, financial planner at Quilter, says: 'The collapse in these penalties is no accident — it reflects the pressure that has rightly built up over years about how unfair the system was. 'Huge media attention highlighted the absurdity of a single parent losing all their child benefit while a couple each earning just under the threshold could keep the lot. 'The Government has finally accepted this doesn't pass the fairness test and is now using carrot rather than stick to help people keep to the rules.' HMRC itself noted in its FOI response that it had focused efforts on raising awareness of the high income child benefit charge (HICBC). Since its introduction a decade ago, the HICBC has come under fire for placing an extra burden on working parents, particularly single parents. A household with two parents each earning £59,000 - a total of £118,000 - will receive child benefit in full, while a household with a sole parent earning £60,000 would see some or all of the benefit withdrawn. Hunt had pledged to significantly reform the charge and consult to move to a system based on a household, rather than individual income by 2026. However, the Government quietly shelved the plans and will no longer proceed with the HICBC reforms. Instead, it has pledged to reduce the administrative burden for families by allowing those affected to repay the charge via PAYE from this summer, rather than completing a tax return. Tomlinson adds: 'In the meantime, families still need to tread carefully. 'If you opt out of receiving child benefit to avoid the charge, make sure the parent who is not working or earning less still gets their National Insurance credits, which count towards the state pension. 'And for those hovering near the income threshold, salary sacrifice into a pension can be a wise financial planning tactic — it reduces your adjusted net income and can bring you back below the charge entirely. 'While Labour look set to let the clear inequalities remain baked into the system at least they are making it easier for people to pay back any additional child benefit they are not eligible for.'
