High Income Child Benefit Charge – an update

The repayment is at the rate of 1% of total benefit paid for each £200 of income above the threshold, up to £80,000, at which point the tax charge matches the total benefit. These limits apply to each individual’s income and were increased by the previous Government in the Spring Budget 2024.

If Child Benefit was claimed for 2023/24, and the higher earner had an individual adjusted net income of over £50,000, they will have to pay the HICBC for 2023/24.

The previous Government announced its intention to move to a household income basis by April 2026. Essentially, a household with two parents each earning £59,000 a year will receive Child Benefit in full, while a household earning less overall but with one parent earning over £60,000 will see some or all of the benefit effectively withdrawn by the HICBC. Basing the clawback on household income instead was designed to address this inequality.

However, in the Autumn Budget 2024, it was announced that the household income basis will not go ahead, as the change, at £1.4 billion by 2029/30, would be too expensive.

The new Government is, however, trying to simplify the system. It was announced that it would let employed individuals pay the charge through Pay As You Earn from 2025 and pre-prepopulate self-assessment tax returns with Child Benefit data for those not using this service.

The Budget document said the Government will also explore how better data use and sharing across Government departments can improve the targeting of economic support to households, especially in times of crisis.

For many, this will not be welcomed news as the current system has received much criticism and moving to a household income basis would essentially have meant that those most in need are not unfairly penalised, although concerns had been raised over financial confidentiality.

Planning to reduce adjusted net income 

The HICBC is based on an individual’s adjusted net income. This is broadly their total income, reduced by certain tax reliefs, such as gifts to charity or pension contributions.  

Making personal pension contributions of £8,000 net, £10,000 gross, or occupational pension contributions of £10,000 gross, for someone with adjusted net income of £70,000 (including relevant UK earnings of at least £10,000) would remove them from the HICBC, as well as topping-up up their pension entitlement and reducing the tax on their income.

Example

Michael and Sally are married with two children, Beth aged 7 and Josh aged 5.

For 2024/25, Michael has adjusted net income of £76,000 and Sally has an adjusted net income of £34,000. Sally claims Child Benefit for both the children. This amounts to a weekly amount of £25.60 for Beth and £16.95 for Josh.

The total benefit is calculated based on the weekly amounts Sally receives up to the end of the tax year – 2024/25. However, as his income is higher, Michael will be liable to the HICBC.

From 6 April 2024 Sally receives:			£
£25.60 x 52 weeks			1,331.20
£16.95 x 52 weeks			881.40
Total			2,212.60
Percentage charge	£76k-£60k       200	= 80%

Michael’s HICBC is: £2,212.60 x 80% = £1,770.08.

Sally will, therefore, effectively, receive £442.52 in Child Benefit (£2,212.60 - £1,770.08) for 2024/25.

Paying the charge

What happens to individuals if they are impacted? 

The difficulty is that those impacted have various options about what to do, and the consequences of these options are not obvious.

The options are to: 

• not claim Child Benefit at all; 

• claim Child Benefit, but not receive payment of it; 

• receive Child Benefit but, in effect, pay some or all of it back through the HICBC tax charge. 

Registering a claim for Child Benefit, but then opting not to receive it, is the only way to avoid paying the HICBC and its associated administration, while preserving national insurance credits, which can protect entitlement to State Pension and ensures that the child is automatically issued with a national insurance number prior to their 16th birthday.

In April 2023, the previous Government announced it would legislate to introduce a route for parents and carers to apply for national insurance credits for tax years in which they did not claim Child Benefit. The move was aimed at ensuring that non-claimants’ State Pension entitlements are not lost. Subsequently, in a January 2024 update, HMRC confirmed that individuals would be able to claim this credit from April 2026, with eligibility being closely based on that for Child Benefit. Transitional arrangements would ensure those affected since 2013 were still able to claim and, going forward, it would be possible to backdate contributions for up to six years. This was brought into law on 8 June 2024.