Childcare changes: what do they mean for you and your family?
By Dan Barratt
This blog post is over a year old. There may now be updates to the facts stated and the views of the author. Please read with this in mind or check for more recent articles.
Over the past 18 months there have been significant changes to childcare entitlements, impacting working parents with children aged 9 months to 4 years. As a father of a one-year-old, I know these changes are important to my family and me, so I’ve summarised the key elements and provided some financial planning implications for those of you in a similar position.
- Firstly, child benefit tapering will now kick in at £60,000 and only fully taper after income exceeds £80,000. You’ll be charged 1% of your Child Benefit for every £200 of income that exceeds £60,000. If your income exceeds £80,000, the charge is equal to the amount of the Child Benefit payment.
- Starting in April this year, working parents of 2-year-olds will have access to 15 hours of free childcare per week if both parents’ incomes are between £8,670 and £100,000.
- From September, this entitlement extends to all working parents of children aged 9 months up to 3 years old, providing an additional avenue of support for families with younger children.
- The most substantial changes will start in September 2025, when working parents of children aged 9 months up to 4 years old will be eligible for an increased 30 hours of free childcare per week and 15 hours if either parent’s income exceeds £100,000.
Currently, free childcare hours are limited to 3 and 4-year-olds, beginning in the term after their respective birthdays. However, the new regulations aim to extend these benefits to families with younger children, acknowledging the critical need for affordable childcare for parents returning to work or pursuing career opportunities.
If you are looking for ways to reduce your net adjusted income, the best route comes from pension contributions. In particular, careful planning around funding pensions to get your income below £80,000 is also extremely important.
To mitigate the reduction in entitlement, you should use financial strategies such as contributing to pensions and making charitable gifts to lower one’s net adjusted income below the £100,000 threshold. This approach ensures that these families can access the full 30 hours of free childcare, helping to alleviate the financial burden associated with childcare expenses.
Understanding the economic implications of these changes is crucial. With the average cost of childcare estimated at £11 per hour, the reduction from 30 to 15 hours could result in a significant financial burden. Over 38 weeks per year, this equates to a cost of £165 per week or £6,280 annually. For individuals earning just over £100,000, this cost is comparable to a gross income of £15,675. The financial impact underscores the importance of careful financial planning for families in this income range to ensure they can access the full entitlement of free childcare hours.
In conclusion, the UK’s new childcare entitlements represent a positive step toward providing greater support for working parents, especially those with younger children. However, considering income levels introduces a layer of complexity, emphasising the need for financial planning strategies to maximise the benefits for families with net adjusted incomes exceeding £100,000. These changes aim to strike a balance between providing valuable childcare support and ensuring a fair distribution of resources based on financial need.
If you would like to discuss your circumstances with one of our team, get in touch today.
This post does not constitute as advice.