There are a tremendous amount of things to think of and organise when you’re having a baby. While it’s infinitely more exciting to plan names and organise all of the items you’ll need for your new-born, it’s equally important to plan financially for the new arrival.
This three-part series will give you an insight into some of the financial considerations of being self-employed and on maternity leave. In this article we are looking at Child Benefit.
An individual will usually be eligible to receive Child Benefit if they live in the UK and are responsible for a child under the age of 16 (age 20 if they remain in approved education/training). Only one individual/partner may claim Child Benefit per child. And the rate of Child Benefit is £20.70 per week for the eldest or only child, and £13.70 per week per child thereafter (this is usually paid every 4 weeks).
So far so good, until we get to the finer details of high earners. Although only one partner can claim for Child Benefit, if either partner’s individual taxable income is over £50,000, that partner will have to pay a tax charge called ‘High Income Child Benefit Charge’. The charge lies with the higher earner in the household and by the time that person’s taxable income reaches £60,000 the whole year’s child benefit will be clawed back.
Are there ways around the charge? Yes. If you are willing, and able, to split the responsibilities of childcare and working and both keep your individual income under £50,000 you won’t have to pay the charge.
If income can otherwise be shared or held back (for example through the use of a limited company) and in so doing keep both individual’s income under £50,000 you won’t have to pay the charge.
If it is not possible to keep your income under the £50,000 limit is it still worth registering for Child Benefit? In a word, yes:
• by registering for Child Benefit and filling in the Claim form, this can help you to qualify for National Insurance Credits, which count towards your State Pension, meaning that if you have a period after the baby is born in which you don’t work, or don’t earn enough to pay National Insurance contributions, your state pension record will still be intact until your child reaches the age of 12.
• in addition, your child will automatically get their National Insurance number just before turning 16, rather than having to apply for one themselves.
In terms of the charge itself, you can either set aside the amount of benefit you receive during the year in the knowledge that you may have to pay some or all of it back, or opt out of receiving the payment (so no charge arises). If your circumstances change in the future, you can always opt back in to receiving Child Benefit.
If you’re unsure if High Income Child Benefit charges may affect you or your family, or are unsure about what your options are, contact us, our specialist medical team will be happy to help!