Why not claiming child benefit could impact your state pension entitlement

Why not claiming child benefit could impact your state pension entitlement

Why not claiming child benefit could impact your state pension entitlement

Introduced with effect from 7 January 2013, the high income child benefit charge (HICBC) acts to claw back child benefit payments where the person receiving the child benefit or their partner earns at least £50,000. The partner with the higher income is the person who suffers the charge.

The rate of the income tax charge is 1% for every £100 by which the “adjusted net income” exceeds £50,000. This means that complete claw back of the child benefit effectively occurs where the earnings are £60,000 or above.

If the HICBC is due, the only options open to the individual are to:

  • suffer the tax charge, or
  • elect not to receive the child benefit

For those who are subject to the HICBC (i.e. those affected who have not elected to no longer receive the benefit), the tax is collected via the Self Assessment Tax Return.

To save the hassle of claiming the benefit only to have to repay it many months later, many taxpayers have simply not claimed the benefit when they have had children.

However, research recently conducted by Royal London Insurance has identified that tens of thousands of parents – and mothers in particular – are in danger of missing out on some of their state pension rights. The study suggested that as many as 38,000 women from higher earning families could be affected.

Royal London said that mothers have lost £278m in eventual pension rights in the last two years alone. The reason is that they have decided not to bother claiming child benefit since the introduction of the HICBC.

Stay-at-home mothers who claim the payments are given national insurance (NI) credits towards their pension, as if they were still at work. By not claiming child benefit, the Government does not have a record of the childcare taking place for the relevant tax years, and so the qualifying years are lost.

A parent who has not claimed child benefit for the last two years could lose £231 a year when he or she comes to receive their state pension, according to Royal London.

However, where child benefit had been claimed and then was subsequently disclaimed following the introduction of the HICBC, we understand that the taxpayers should have their state pension entitlements protected under transitional arrangements.

Nevertheless, based on this research it would appear that the best course of action for families in this scenario is to still claim the child benefit, and to repay it via the self-assessment process.

If you would like advice in relation to the above or in respect of your self-assessment position more generally then please don’t hesitate to contact us.

This is intended as a summary and overview of the tax situation and no action should be taken without first seeking professional advice specific to your circumstances.

James Boustead

Tax Manager

David Tallon

Tax Senior