Date posted: 2nd Nov 2018
Until 2013, when preparing a tax return, we did not need to consider any child benefit received as it was a non-taxable benefit. However, that’s all changed, and we now need to ask the question when completing a tax return, as there may be a charge. Essentially, if you receive child benefit, some or all of it could be repayable if you (or someone you live with) has income between £50,000 and £60,000. The amount repayable is calculated as part of the process we undertake when completing a client’s annual tax return.
For those earning over £60,000, they may have opted to stop claiming child benefit given that it would be repayable in full to HMRC. New parents, who earn in excess of £60,000 may have decided to not claim the benefit at all.
However, the decision to cease or not even start claiming, can impact upon the partner/spouse’s national insurance record, as we will explain.
To claim a full state pension when you reach state pension age, you will need (under current law), 35 qualifying years in which you have paid national insurance. There are national insurance credits given for those whose children are under 12 and aren’t earning at all or enough to pay national insurance. Essentially this will ensure that there aren’t gaps in their national insurance record which will enable the individual to maximise their state pension entitlement. This ensures that they are not disadvantaged by staying at home to bring up children.
If you need any further advice then please contact us today.
Let’s take the example of Craig and Debbie. Craig is a successful pilot and earns in excess of £60,000. For that reason, they have never claimed any child benefit for any of their children (all born since 2014) as it would all be repayable to HMRC.
Debbie has struggled to find a job since leaving University at 21. She met Craig aged 22 and hasn’t worked at all since the birth of their first child, when she was 24. Due to Craig’s earnings, Debbie doesn’t need to work and feels that her time is better invested in bringing up her young family. However, she plans to start working when the youngest child reaches senior school age. Debbie will be 40 by that time. Even if she then worked the next 27 years (until she was 67 and reached state pension age) and each of those was a qualifying year for state pension purposes, she wouldn’t be eligible for a full state pension as she has not paid national insurance for 35 years. She would only receive 27/35ths of the full state pension. Debbie would have been better off making a claim for child benefit, so that she was registered as a parent of young children. She could have opted not to receive this due to Craig’s earnings which would still have given her the appropriate national insurance credits.
Whilst this example is extreme, there could be some spouses who aren’t receiving national insurance credits as a result of not claiming child benefit. The best course of action to take it to check your state pension forecast which will give you an overview of any ‘missing’ years of contributions.