You can now earn up to £60,000 a year without losing any of the benefit.
The point at which you lose it entirely is when your income is over £80,000 a year.
These Child Benefit changes were announced in the Budget in March 2024, and will replace the current allowances and limits on 6 April 2024.
Previous Rules
Previously these amounts were £50,000 for when you started losing the benefit, and £60,000 for when you lost it completely. So, from April it will be at a higher starting point, and it is a more generous taper, as the taper earnings amount is now £20,000, rather than £10,000 as before.
Those are the headlines, but as ever with these types of things, the detail is important to understand.
Individual Basis Testing
For now, Child Benefit entitlement is still tested on an individual basis. That is, if you are a single parent, then it is simple; the amount you earn determines how much benefit you get.
When you are in a couple, be it married or unmarried, and bringing up a child or children together, it is assessed on the highest earner of the two of you.
Let's look at an example.
Mr Stevens earns £55,000 and Mrs Stevens earns £70,000 from their respective jobs. They have a 2-year old girl called Layla.
In this scenario, the benefit level is assessed on Mrs Stevens, as she's the higher earner.
On her income level, they will now get half the benefit available, as her income falls exactly halfway between the start of the taper (£60,000) and the end of it (£80,000).
The 2024/25 allowance for a single child is £25.60 a week. This means they will get £12.80 a week. Before these changes, they would have received nothing.
The full amounts for 2024/25 tax year are as follows:
£25.60 for eldest or only child
£16.95 for each subsequent child
The taper works by reducing the amount of benefit you get by 1% for every £200 of income you receive over £60,000.
Remember, you need to claim Child Benefit, as you don't get it automatically.
Action - check to see if it is worthwhile claiming Child Benefit from April due to the changes. If so, claim here: https://www.gov.uk/child-benefit/how-to-claim
Adjusted Net Income Rules
As outlined in the last blog post, which was all about pensions, it is important to remember that it is your 'adjusted net income' that is assessed as your earnings level when it comes to Child Benefit entitlement.
This means that if you make a pension contribution and would otherwise be over the allowance thresholds, your total income gets 'reduced' by the amount of pension contribution you make, and could mean you are entitled to more Child Benefit allowance.
For more information on how this 'net adjusted income' mechanism works, read here:
New Proposed 'per household' System from 2026
From April 2026, it is proposed that your entitlement will instead be assessed on a 'per household' basis. It hasn't been confirmed how this will work yet, but it is required to stop unfair situations arising.
Let's go back to Mr and Mrs Stevens. Currently, they have £125,000 income as a household and receive half the child benefit available for their daughter Layla, amounting to £665.60 a year.
However, let's say Mr Stevens reduces his hours down to part-time, and earns £35,000. Mrs Stevens gets a promotion at work, and she now earns £90,000 a year.
They have the same level of household income, but will now receive no child benefit because her income is well in excess of the end of the taper (£80,000).
The 'per household' change is designed to avoid such situations, but we will need to wait and see how this will be implemented.
They say comedy is all about timing. It is typical that I uploaded a post about how you can use pensions to get back lost Child Benefit allowance last week, and on the very same day it is released, the rules are changed in the Budget!
If you'd like help with understanding the implications of Child Benefit changes for you, ensuring your income is tax-efficient and working hard for you, come and book in a chat here: https://calendly.com/labfp/intromeeting
Otherwise, see you next time.
The information contained within this blog post should not be taken as financial advice, as it does not take account of personal circumstances, which would affect advice given. Should you wish to talk to us about personalised advice for you, we'd be happy to do so.
Tax rates are correct as at time of writing - 11/03/2024.