As announced in the Spring Budget, the point at which the High-Income Child Benefit Charge (HICBC) begins to take effect was increased from £50,000 to £60,000, a significant increase, the first of which since the charge was introduced in 2013.
We explore what these changes mean for you, and the effect they could have on your finances.
What is the HICBC?
The HICBC is designed to reclaim Child Benefit from families where the highest earner’s income surpasses a certain threshold. Before 6 April 2024, the threshold was set at £50,000, with a tax charge of 1% of the total Child Benefit for every £100 earned above that amount. Child Benefit payments were fully withdrawn once the highest earner’s income reached £60,000.
Under the revised policy, the clawback is now calculated at 1% for every £200 earned over the £60,000 threshold so the full recovery of Child Benefits will not occur until a relevant individual’s income hits £80,000.
How will this affect household finances?
-Almost half a million families are set to benefit from the changes – under the new threshold, 170,000 people will no longer have to pay the HICBC, and 485,000 families are predicted to benefit from reduced liabilities
-Single vs dual income families – it may seem that the current rules benefit dual income households over single-income, even when the total income of the latter is lower. Changes to address this are also planned for April 2026, at which point the HICBC will assess total household income rather than that of the highest earner, aiming to create a more equitable system.
How do I prepare for the changes?
-Reconsider a Child Benefit claim – as the threshold has now increased, those who have previously decided not to claim Child Benefit may now find it beneficial. Claims can be backdated up to three months, or to the child’s birth date, so keep this in mind when planning.
-Check your National Insurance credits are up to date – if you choose not to claim Child Benefit to avoid the HICBC, be aware of the impact on National Insurance credits. These credits are essential for state pension eligibility especially for years where there are not earnings on which national insurance is paid. Opting out could also prevent your children from automatically receiving a National Insurance number when they turn 16.
-Remember to file your Self-Assessment tax return – if your family is impacted by the HICBC, it’s crucial to register for Self Assessment and submit a tax return, even if your income is mainly from PAYE. Failure to do so could result in investigation and even penalties from HMRC.
Get in touch
The HICBC changes offer a timely opportunity for individuals, and families, to reassess their financial planning strategies, especially in relation to Child Benefit claims and tax liabilities.
If you would like further advice on whether HICBC impacts you, or would like to discuss your specific circumstances in more detail to ensuring you are making the most tax efficient decisions for you and your household, get in touch with the PM+M tax team by emailing enquiries@pmm.co.uk or calling 01254 679131.
