When you have a child, you may be able to claim Child Benefit, a government system designed to help parents and carers with the costs of raising a child under the age of 16 (under 20 if in approved education or training).
In the 2023/24 tax year, parents and carers can receive £24 a week for an eldest or only child, and £15.90 a week for every child after that.
In 2024/25, the payments will increase to £25.60 a week for your eldest or only child and £16.95 for each additional child.
However, there is an income threshold that can mean you do not actually reap any financial reward from Child Benefit. Instead, you have to pay back whatever you are given, paid back through your self-assessment tax return.
So, if you or your partner are a high earner, you may have decided not to claim Child Benefit whatsoever.
What you may not know, however, is that it could still be worth claiming Child Benefit (even if you turn off the actual payments to avoid the tax charge). That is because you may be able to claim a National Insurance (NI) “credit” if you stopped working to raise a child, which could contribute to what you will receive from the State Pension.
In turn, this has led to high earners or their spouse or partner with gaps in their NI records, as they chose not to claim Child Benefit, and so could not receive these credits. This is an issue the government is now looking to address with new rules.
So, find out how NI credits work, why Child Benefit is important even if you would have to return the money, and how new government rules could help you boost your NI record.
Parents and other carers can claim National Insurance credits
Under the rules of the new State Pension, the amount you can receive will typically depend on how many qualifying years of contributions you have made on your NI record.
You will usually receive some State Pension if you have at least 10 years of qualifying contributions, and the full amount if you have made a minimum of 35 years of qualifying contributions. You usually get a qualifying year if you pay National Insurance contributions (NICs), either directly from your salary, from profits if you are a business owner, or voluntarily.
Crucially, you can also receive NI credits if you are caring for a child under the age of 12. This credit gives you a qualifying year on your record.
However, to receive these NI credits, the parent or carer of the child must claim Child Benefit. If you do not, and you also do not pay sufficient NICs, you will be left with a gap on your record. This could affect your State Pension entitlement in future.
You can still receive childcare credits through Child Benefit, even if you exceed the income threshold
Although you can still claim these NI credits through Child Benefit, many high earners choose not to apply for it in the first place. That is because you may be subject to the “High Income Child Benefit Charge” if either you or your partner have an income that exceeds a certain threshold.
If you or your partner have an adjusted net income (that is, your taxable income less your own pension contributions or Gift Aid donations) in excess of £50,000 in the 2023/24 tax year, then you will often see a tax charge on what you receive. This is the High Income Child Benefit Charge.
This £50,000 only counts for individuals. So, if you and your partner both earn £45,000 a year, you would not be affected by the High Income Child Benefit Charge. But, if one of you earns £60,000 while the other earns £30,000, you could be affected, even though your household income is the same as in the first example.
The High Income Child Benefit Charge imposes a tax charge of 1% of your Child Benefit for every £100 you exceed the threshold. That means your entire Child Benefit would effectively be repaid by way of the tax charge if your adjusted income is £60,000 or more.
If you or your partner exceeded this limit, you might have decided not to claim Child Benefit as you would have had to repay any money you received from it through a self-assessment tax return.
But crucially, by not claiming, that also means you would not have received the NI credits available to those who miss years of work raising children.
As a result, it is sensible to claim Child Benefit, even if you turn off the payments themselves to avoid having to pay the charge.
It is worth noting that chancellor Jeremy Hunt made changes to the High Income Child Benefit Charge in his Spring Budget, too. From 6 April 2024, the earnings limit will increase to £60,000, and you will be able to earn up to £80,000 before your Child Benefit payments taper off entirely.
Furthermore, there are also plans to assess household income against the High Income Child Benefit Charge, rather than just the income of an individual. This is set to happen by April 2026.
The government is introducing a route to allow parents to retrospectively claim missed credits
If you have missed out on NI credits because you did not historically claim Child Benefit, then all may not be lost.
That is because the government has now announced plans to introduce a route for parents and carers to retrospectively apply for credits they missed.
From April 2026, you will be able to claim historical credits for years when you did care for a child, with eligibility criteria closely based on that for Child Benefit. You may be able to claim for as far back as 2013 thanks to this.
Moving forward, you will then be able to make retrospective claims for six years following the relevant tax year.
As a result, it may be worth obtaining a State Pension forecast and your NI record and seeing whether you have any gaps in your NI record. If you do, it is then worth checking whether you may be able to claim historical NI credits to fill these gaps that you have from when you were raising a child.
Get in touch
If you would like help planning for your retirement, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
