The High Income Child Benefit Charge: Budget Changes Bring Relief to Higher Earners with Children

Published 11th April 2024

The recent budget announcement brought good news for higher-earning families with children. The chancellor revealed plans to overhaul the controversial High Income Child Benefit Charge (HICBC).

This tax penalty has been affecting many parents. However, the proposed changes are set to improve the financial situation of nearly half a million families by an average of £1,260 a year.

In comparison, 170,000 families will no longer be subject to the charge.

Understanding the HICBC

The HICBC was introduced in 2013 to reduce the child benefit paid to higher-earning parents. For those earning more than £50,000 a year, child benefit was clawed back through the tax system on a sliding scale.

The charge was 1% of the child benefit amount for each £100 of income between £50,000 and £60,000. For those earning over £60,000, the charge was 100%, meaning they had to repay all the child benefits they've claimed.

The Impact on Families

The HICBC has been dubbed a "tax on children" by some, leading to parents facing effective marginal tax rates much higher than the official 40% higher-rate income tax band.

Some parents with three children have paid tax at 71% on earnings between £50,000 and £60,000. As the threshold hadn't moved with inflation, more families were been drawn into paying the charge.

The Government's Plan

Recognising the unfairness of the current system, the government has announced plans to move to a system based on household income rather than individual income by April 2026.

In the meantime, from 6 April 2024, the threshold at which the charge kicks in has been raised to £60,000, and the rate at which the penalty is charged has been halved.

This means people will only lose all their child benefits after earning £80,000.

What It Means for You

For every £200 of income over £60,000 the change is 1% of the maximum amount of your entitlement.

It is important to not that parents should still register for child benefit even if they opt out of receiving payments, to avoid the high income charge. This is so that they maintain entitlement to national insurance credits such as state pension record..

Want to know more?

You can contact Hammond-Barr accountants on 01438 281281 or via email at [email protected].