Millions of grandparents could be missing out on a tax break worth £275 a year for looking after their grandchildren.
A little-known rule means grandparents who look after children under the age of 12 can earn a National Insurance tax credit worth 1/35 of the full state pension to their final state pension figure. At current rates this is around £275 per year, according to the pensions consultancy LCP. Grandparents can make a claim for the current financial year from Saturday.
Sir Steve Webb, former pensions minister and now partner at LCP, urged grandparents to make a claim if they had cared for relatives. “National Insurance credits help people to protect their state pension while doing valuable work such as looking after a child,” he said. “Now that applications are open for 2021/22, I would encourage anyone who thinks they might be eligible to put in an application.
“They should also think about whether they might have been entitled at any point since 2011, as there is currently no deadline for backdated claims.”
Grandparents could earn a windfall worth thousands if they have looked after relatives in previous tax years. If someone had been providing care every year since 2011/12, and now put in a claim for all 11 tax years, they could add just over £3,000 to their total final state pension, according to calculations by LCP.
There is no minimum hours rule, which means that dropping and picking a child up from school could qualify for National Insurance credits. The Government also relaxed rules during the pandemic so that entertaining children over video calls could count towards care, Sir Steve said.
According to charity Age UK, five million grandparents have provided regular childcare for their grandchildren at some point.
Grandparents can earn the tax credit if the parent or carer of the child claims child benefit, and can therefore sign over the National Insurance credit to another family member when they go out to work. According to the most recent official figures, 7.74m families claim child benefit.
Sir Steve said it came at no extra cost to the parent or primary carer, describing the extra credit as “going spare”.
In order to claim under the “specified adult childcare credits” scheme, grandparents need to complete an application form found on the HM Revenue & Customs website. It requires personal details and specified periods of care, the details of the child’s parent or main carer, and for both the grandparent and the primary carer to sign declarations on the application. Claimants must be under state pension age when they cared for the child.
A tax break will come as relief to the millions of grandparents taking on more childcare duties, as parents struggle to cope with rising costs for childcare. Experts have warned that nursery fees for children under two could reach £2,000 a month in some areas. Many families are also juggling rising mortgage costs, as well as energy and grocery bills.
Child benefit is a monthly payment from the Government to help anyone caring for a child to pay for essential goods.
Eligibility is not means tested, but if parents earn over £50,000 a year, then they pay an additional tax charge known as the “high-income child benefit charge”. Once either parent earns £60,000, the tax charge becomes equal to the whole child benefit.