Protecting the state pension for stay-at-home parents

An issue concerning how the high income child benefit charge (HICBC) can potentially affect stay-at-home parents has emerged.

The HICBC claws back child benefit payments where either parent has income over £50,000 a year, and removes the benefit entirely if either parent has income over £60,000. For couples where one person earns over £60,000 whilst the other stays at home to look after children, it can appear that it is not worth claiming a benefit that is completely withdrawn.

However, child benefit payments also provide national insurance credits for adults caring for children under the age of 12. These credits can help build up entitlement to the state pension, with 35 years of contributions required to receive the full benefit (£168.60 a week from April 2019).

These NI credits are given to the parent who claims the Child Benefit by default. However, the credits are still provided even if the parent involved asks for payments to stop to avoid the HICBC.

The state pension for stay-at-home parents

The problem arises if one parent does not work, but the NI credits are paid to their partner because of that default allocation. This means the stay-at-home parent could lose state pension entitlement while their partner receives unneeded NI credits, while also paying full NI contributions through their payroll.

HMRC only keeps data on the parent making the claim, so when the House of Commons Treasury Select Committee asked how many families might be affected by these rules, no accurate answer was available. However, HMRC estimated 3% of households (about 230,000) are affected, based on DWP annual survey data.

If the wrong person is receiving NI credits in your household you can ask HMRC for the credits to be transferred, but such a switch can only be backdated for one tax year. So, along with all the other deadlines on 5 April, that Friday is the last opportunity to transfer NI credits for 2017/18.

The value of tax reliefs depends on your individual circumstances.

Tax laws can change.

The Financial Conduct Authority does not regulate tax advice. 

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