High income child benefit charge - April 29th 2024

From 6 April 2024, the high income child benefit charge (HICBC) threshold has increased by £10,000 to £60,000, with the rate of withdrawal halved. Longer term, the intention is that the charge will move to a household basis from 6 April 2026.

Previously, the HICBC came into play when an individual – or their partner – received child benefit and their annual income exceeded £50,000. The charge effectively reduced the amount of child benefit that could be claimed to nil once income hit £60,000.

From 6 April 2024

The HICBC does not now apply until income exceeds £60,000.

• A parent earning £60,000, who would previously have lost all of their child benefit claim, now keeps the entire amount.
• With the rate of withdrawal halved, child benefit is not fully withdrawn until an individual’s income reaches £80,000. The charge removes 1% of child benefit for every £200 of income over £60,000.
• Once income reaches £80,000, the charge is 100%. Therefore, the child benefit claim is effectively reduced to nil.

The charge leads to a high effective marginal rate of tax, especially where child benefit is claimed for several children. Although still high, the reduced rate of withdrawal means the effective marginal rate of tax is now lower lower, so there is less penalty for being given a pay rise.

The reduced rate of withdrawal does mean, however, that the amount of gross pension contribution required to protect a claim has doubled. For example, an individual with income of £60,000 previously needed to make a pension contribution of £10,000 to reduce their income level to the previous threshold level and reinstate their full child benefit claim. Now an individual with income of £80,000 needs to make a £20,000 contribution to achieve the same result. Anyone who previously opted out because their income was over £60,000 should opt back into child benefit by 5 July 2024 as claims can only be backdated for three months.

A new claim for child benefit is automatically backdated for three months and can be made using the HMRC app or online.

From 6 April 2026

Because the HICBC is based on individual incomes, a working couple each with income of £59,000 (household income of £118,000) retain 100% of their child benefit claim. However, where there is a sole working parent, child benefit is completely lost once household income is £80,000, nearly £40,000 less.

A move to a system based on household income will address this inequality but could be controversial. Apart from completely breaching the concept of independent taxation (the HICBC definition of a partnership includes people living together), any revenue neutral adjustment to the threshold will mean a considerable number of households losing out.