UK Family Tax Planning: Benefits, Childcare, and Allowances

Families in the UK have access to several government schemes that reduce the cost of raising children. Some are universal, some depend on your income, and some depend on your working status. Most families don't claim everything they're entitled to.

This guide covers every major family benefit, how they interact with each other, and how to optimise your income to keep them.

#Overview: What's Available

#Child Benefit

Child Benefit is paid to families with children under 16 (or under 20 if in approved education/training).

Rates for 2024/25:

• First child: £25.60/week (£1,331.20/year)
• Each additional child: £16.95/week (£881.40/year)

A family with three children receives £3,094 per year.

#The High Income Child Benefit Charge

If either parent earns over £60,000, you start losing Child Benefit through a tax charge. The clawback is 1% of your benefit for every £200 earned above £60,000. At £80,000, you lose it all.

Should you still claim? Yes. Even if you'll lose 100% to the charge, claiming Child Benefit gives the non-working or lower-earning parent National Insurance credits. These credits count towards their State Pension. You can claim but opt out of receiving the payments to get the NI credits without the charge.

Read the full Child Benefit High Income Charge guide →

#Tax-Free Childcare

Tax-Free Childcare is a government top-up on your childcare spending. For every £8 you pay in, the government adds £2, up to £2,000 per child per year (£4,000 for disabled children).

#Who Qualifies

Both parents (or the sole parent) must:

• Be working and earn at least £9,518/year each (16 hours at minimum wage)
• Earn less than £100,000/year each

Your child must be under 12 (under 17 if disabled).

You can't use Tax-Free Childcare if you're receiving:

• Tax Credits
• Universal Credit
• Childcare vouchers (for the same child)

#How It Works

1. Open an account at childcarechoices.gov.uk
2. Pay money in (up to £2,000/quarter per child to maximise the top-up)
3. Government adds 20%
4. Pay your childcare provider from the account

The account is like a ringfenced childcare wallet. You can only pay registered childcare providers from it.

#Common Mistakes

Forgetting to reconfirm: You must confirm your eligibility every 3 months. Miss the deadline and your account freezes until you reconfirm.

Paying too much in one quarter: The government tops up maximum £500 per quarter. Paying £5,000 in January only gets you £500 that quarter, not £1,250.

Read the full Tax-Free Childcare guide →

#30 Hours Free Childcare

Working parents of 3 and 4 year olds can get 30 hours of funded childcare per week during term time (38 weeks). This can be stretched to approximately 22 hours per week across the full year.

#Who Qualifies

Same eligibility as Tax-Free Childcare:

• Both parents working and earning £9,518+/year each
• Both parents earning under £100,000/year each

You also qualify if you're not working due to:

• Parental, maternity, paternity, or adoption leave
• Statutory sick pay
• Receiving certain disability benefits while your partner works

#What It Covers

The 30 hours covers childcare only. Providers can (and do) charge extra for:

• Meals and snacks
• Nappies and consumables
• Trips and activities
• Hours beyond the 30

The government pays providers around £5-6/hour, while many charge £8-12/hour. The gap creates incentives for providers to push extras or limit funded places.

#Universal 15 Hours

All 3 and 4 year olds get 15 hours free regardless of parental circumstances. No income test, no work requirement. The extended 15 hours (to make 30 total) requires the eligibility criteria above.

#Expansion Timeline

The government is expanding funded childcare:

These expansions use the same eligibility criteria.

Read the full 30 Hours Free Childcare guide →

#Marriage Allowance

If one partner earns below the Personal Allowance (£12,570) and the other is a basic rate taxpayer (earning £12,571-£50,270), you can transfer £1,260 of unused allowance.

This saves the higher earner £252 per year (20% of £1,260).

You can backdate claims for 4 years, potentially recovering over £1,000.

Who it's for: Couples where one partner doesn't work, works part-time, or earns below the Personal Allowance. Typically families with a stay-at-home parent or couples where one partner is retired or studying.

Who it's not for: If both partners earn over £12,570, or if the higher earner pays higher rate tax (above £50,270), Marriage Allowance doesn't apply.

#How Benefits Interact

#Tax-Free Childcare + 30 Hours

You can use both. The 30 Hours covers the free childcare; Tax-Free Childcare pays for:

• Extra hours beyond 30
• Meals and consumables
• Holiday clubs
• Before/after school clubs (once your child starts school)

This is the optimal combination for most working families with 3-4 year olds.

#Child Benefit + Tax-Free Childcare

These are separate schemes with different income tests.

• Child Benefit clawback starts at £60,000
• Tax-Free Childcare cuts off at £100,000

A parent earning £90,000 loses all Child Benefit but still qualifies for Tax-Free Childcare. A parent earning £101,000 loses both.

#Universal Credit vs Everything Else

Universal Credit's childcare element covers up to 85% of costs, which is more generous than Tax-Free Childcare's 20%. But you can't claim both.

If you qualify for Universal Credit, its childcare element usually wins. If you don't qualify for UC (because your income is too high), Tax-Free Childcare is your option.

#The £100,000 Cliff Edge

Several benefits share the £100,000 ceiling:

• Tax-Free Childcare
• 30 Hours Free Childcare
• 15 Hours for under-3s (when expanded)

If either parent earns £100,000 or more, you lose access to all of these.

A family with two children in nursery might lose:

• £4,000/year in Tax-Free Childcare top-ups
• Thousands more in funded hours

Combined with the 60% tax trap between £100,000 and £125,140, there's a strong case for reducing income below £100,000 through pension contributions.

Example: Parent A earns £105,000. Parent B earns £40,000. They have two children, ages 2 and 4, in full-time nursery.

If Parent A sacrifices £5,000 into their pension:

• Taxable income drops to £100,000 (under the threshold)
• They qualify for Tax-Free Childcare (worth £4,000/year in top-ups)
• They qualify for 30 Hours (worth several thousand more)
• They avoid the 60% tax trap on that £5,000
• They've added £5,000 to their pension

The sacrifice "costs" about £2,000 in take-home pay but generates far more in preserved benefits and pension value.

Read about the 60% tax trap → Read about salary sacrifice for higher earners →

#Childcare Vouchers: Legacy Scheme

Childcare vouchers closed to new applicants in October 2018. If you're still receiving them, you can continue until your child turns 15.

Vouchers worked differently: you sacrificed salary before tax, reducing your income tax and NI. Maximum savings were around £933/year for basic rate taxpayers.

You can't use vouchers and Tax-Free Childcare for the same child. For most families now, Tax-Free Childcare offers better value (especially with multiple children).

If you're on vouchers and unsure whether to switch, compare:

• Vouchers: £933/year saving per parent (basic rate)
• Tax-Free Childcare: £2,000/year per child

With one child and two voucher-claiming parents: vouchers might win. With two children: Tax-Free Childcare wins.

#Planning for the £60k and £100k Thresholds

#Approaching £60,000

If you're earning close to £60,000 and have children:

• Calculate your HICBC liability at your projected income
• Model what pension contribution would bring you below £60,000
• Compare the cost (reduced take-home) vs benefit (kept Child Benefit + pension growth)

Often, contributing just enough to stay at £60,000 is optimal.

#Approaching £100,000

This is the bigger cliff. Losing Tax-Free Childcare and 30 Hours simultaneously can cost a family more than the income above £100,000 is worth.

If your income is £100,000-£110,000 and you have young children:

• Salary sacrifice to get below £100,000
• You preserve childcare benefits worth thousands
• You avoid the 60% tax trap
• Your pension grows faster

Above roughly £115,000, the maths shifts. At that point, you've lost the benefits anyway and might focus purely on pension optimisation within the 60% trap.

#What BishBashDosh Shows You

The calculator models all family benefits alongside your tax position:

• Child Benefit and HICBC at your income level
• Whether you qualify for Tax-Free Childcare and 30 Hours
• How salary sacrifice affects each benefit
• The total value of benefits preserved by reducing income
• Optimal contribution level for your specific situation

Enter your income, partner's income, and number of children to see the full picture.