One of the few surprises in the Spring Budget was the change affecting how child benefit is taxed for higher earners.
The high income child benefit charge (HICBC or ‘hicbic’) was introduced in January 2013 to
reduce child benefit payments for higher earners. It was considered an arbitrary piece of
legislation by some as the charge was triggered where one individual had income exceeding
£50,000. A couple with income of £49,999 each were unaffected, but a single parent with
income of £60,000 lost all their child benefit.
reduce child benefit payments for higher earners. It was considered an arbitrary piece of
legislation by some as the charge was triggered where one individual had income exceeding
£50,000. A couple with income of £49,999 each were unaffected, but a single parent with
income of £60,000 lost all their child benefit.
The £50,000 threshold, like so many trigger points in the tax regime, was not inflation-linked.
What started out as a threshold originally £8,550 above the higher rate threshold had fallen to
£270 below it by April 2021. As child benefit increased, so did the effective rate of clawback.
For example, in 2023/24 someone with income of £56,000 and two children suffered a HICBC
of 20.75% in addition to 40% income tax (42% in Scotland) on each extra £1 of income
earned. The more children, the higher the HICBC rate.
This year’s March Budget made two significant changes for 2024/25:
What started out as a threshold originally £8,550 above the higher rate threshold had fallen to
£270 below it by April 2021. As child benefit increased, so did the effective rate of clawback.
For example, in 2023/24 someone with income of £56,000 and two children suffered a HICBC
of 20.75% in addition to 40% income tax (42% in Scotland) on each extra £1 of income
earned. The more children, the higher the HICBC rate.
This year’s March Budget made two significant changes for 2024/25:
– The threshold was raised to £60,000. Had it been index-linked since 2013 it would have
been about £68,500 by April 2024.
been about £68,500 by April 2024.
– The income band over which child benefit is gradually reduced was doubled to
£20,000, meaning that all benefit is now lost at £80,000 rather than £60,000. The
doubling of the band also reduces the effective rate of HICBC – for two children it is
now 11.06%.
£20,000, meaning that all benefit is now lost at £80,000 rather than £60,000. The
doubling of the band also reduces the effective rate of HICBC – for two children it is
now 11.06%.
If your – or your partner’s – income is between £60,000 and £80,000 and you stopped
payment of child benefit to avoid the HICBC, you should now consider restarting payments,
even though some HICBC will be payable. As child benefit can only be backdated by three
months, prompt action is needed. To start the process go to the government website.
payment of child benefit to avoid the HICBC, you should now consider restarting payments,
even though some HICBC will be payable. As child benefit can only be backdated by three
months, prompt action is needed. To start the process go to the government website.
At the same time, you should seek advice on your options for reducing taxable income (and thus the
HICBC). These could include making pension contributions or rearranging investments.
Longer term, the Chancellor has said that HICBC would be made fairer by basing it on
household income from April 2026. That change promises to be an administrative challenge,
given independent taxation, but of course the Chancellor may also have changed in two years’
time.
Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice.
Investing in shares should be regarded as a long-term investment and should fit in with your
overall attitude to risk and financial circumstances
Longer term, the Chancellor has said that HICBC would be made fairer by basing it on
household income from April 2026. That change promises to be an administrative challenge,
given independent taxation, but of course the Chancellor may also have changed in two years’
time.
Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice.
Investing in shares should be regarded as a long-term investment and should fit in with your
overall attitude to risk and financial circumstances
