High Income Child Benefit Charge changes – what you need to know
Until a few years ago, child benefit was paid to households with children, regardless of family income. That changed in January 2013. From this point, the government introduced something called the High Income Child Benefit Charge (HICBC) aimed at certain higher-rate taxpayers. This meant that, if one or both parents earned between £50,100 and £60,000, they would qualify for less Child Benefit, calculated on a sliding scale. If either parent earned over £60,000, they wouldn’t qualify for any Child Benefit at all. However, from 6th April this year, there are High Income Child Benefit Charge changes you may need to be aware of – and to plan for.
How has the High Income Child Benefit Charge changed?
Back in 2013, when HICBC was introduced, the higher rate threshold for Income Tax was set at £42,475. Since then, the threshold has risen steadily and broadly in line with inflation. For the tax year 2020/21, the higher rate is set at £50,271.
During the same period, the HICBC earnings threshold has remained static at £50,000. The charge is calculated at a 1% cut in Child Benefit for every £100 earned over that amount. This means it kicks in when one or both parents earn more than £50,099.
The big difference this year is not that the High Income Child Benefit Charge has itself changed. It hasn’t – it has remained static. Instead, an increased higher-rate Income Tax threshold means that some basic rate taxpayers will be hit by HICBC for the first time.
What does this change mean for me?
If you are a parent earning in the region of £50,000 and you claim Child Benefit, you need to be careful that you don’t fall into the High Income Child Benefit Charge trap. This is particularly important because HMRC will claw back Child Benefit via your Self Assessment Tax Return.
My income is now over the HICBC threshold. What should I do?
If you find that you or your partner now have earnings over the HICBC threshold, we strongly recommend you talk to your accountant at THP. There are a number of strategies you can employ to avoid being hit by the High Income charge. These include:
- Making small Gift Aid donations
- Increasing personal pension payments.
Both of these strategies could help you extend the basic rate Income Tax band and thus bring you out of HICBC.
Rather more complex is the topic of class 3 National Insurance credits. In some cases it is possible to transfer these to a family member who has been involved in caring for you child or children. This can boost the state pension of the recipient by £260 per year. However, it won’t work for everyone, so do ask for advice.
Where can I learn more about the High Income Child Benefit Charge?
The Gov.uk website has lots of information on HICBC. The best places to start are here and here. It’s worth familiarising yourself with this information if you don’t want to be hit by an unexpected HICBC charge on your next tax bill!
About Karen Jones
Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.
With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.
Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”
Karen’s specialist skills:
- Personal Taxation
- Tax Efficient Planning
- Trust Administration