Having children is a life-changing event, not least because of the impact it has on your finances.
Child tax credits were introduced in 2003 and are designed to support parents who are in work but on low incomes.
This has led to many working mums and dads taking years off work but, because they’re comfortable with their household earnings, neglecting to claim child tax credits.
Unfortunately, this puts them at risk of losing qualifying years for a state pension.
If you fall within the above bracket (no matter how high you consider your household earnings to be), you’re entitled to Child Tax Credits.
Here’s why you should claim them.
But what if I’m not working?
If you’ve stopped work to look after your children but aren’t claiming tax credits, it will almost certainly impact your state pension.
This is why, regardless of your working status, it makes sense to claim anyway. As a result, you’ll have to repay it back on the higher rate tax bracket, but in return, you’ll continue to accumulate those state pension years!
We’ve had clients who have reached retirement age only to discover they don’t have the full number of years available for their state pension. The reason? They spent ten years or more looking after their children and not claiming tax credits, simply because they didn’t think they needed to.
This can have a sizeable impact on the pension you receive, which is why it’s always sensible to claim child tax credit.
How much better off could I be each year?
Beyond the benefits for your state pension, child tax credits can make you better off each year, and help considerably with the average annual childcare cost of £3,000.
To find out an estimate of what tax credits could be worth to you, give the government’s handy tax credits calculator a try.
When are renewals due?
Child tax credit renewals are due by 31st July each year, but there’s no need to wait – particularly if your circumstances change.
If, for instance, you begin working again, it’s important to update the government with your new circumstances. This will ensure you don’t end up having to pay back some (or all) of the credits you receive.
The renewal pack usually arrives between April and July. If you start claiming, be sure not to ignore these renewal notices – if you do, payments could stop completely, losing you potentially thousands in tax credits.
What about child benefit?
If you’re responsible for one or more children under the age of 16, you can also claim child benefit.
There’s no limit to how many children for whom you can claim, but it’s important to note that high earners might have to pay a tax charge if individual income exceeds £50,000 per year.
Just like child tax credits, claiming child benefit will help you get National Insurance credits that count towards your state pension.
Still have questions?
Child tax credits are a relatively complex area, therefore if you’re still unsure about how they impact your situation, our friendly team are always available for a chat.