The High Income Child Benefit Charge came in from 1 January 2013, thresholds were increased from April 2024.
At its simplest the charge applies:
- Where there has been a claim to Child Benefit
- To the highest income in a joint household (married, unmarried or civil partnership); or to a individual who is a single parent
- Where the highest household income exceeds £60,000 (2023/24 and earlier years £50,000)
This means:
- In a single parent household it cuts in at £60,000 income
- In a two parent household where only one parent has an income it cuts in at £60,000
Theoretically in a two parent household where both parents have income joint household income could be as high as £119,998 (2 x £59,998) without a charge – although in reality it would cut in lower unless the incomes were equally matched.
Obviously this means that structuring joint assets and income streams is of importance – eg:
- If you have a joint income stream from a business of, say, £100k pa, make sure that this is split over both parties to a relationship to keep them, alongside other income, below £60k
- If one partner earns, say, £58,000 and the other £20,000, then if there is a joint rental property producing, say, £6,000, it would be better for this to be allocated to the lower earner rather than split equally – this needs a declaration to HMRC via Form 17 – see Declare beneficial interests in joint property and income – note this has an impact wider than just tax, so take advice.
The High Income Child Benefit Charge itself is 1% of Child Benefit received for each £200 of income over £60,000 (2023/24 and earlier 1% for each £100 of income over £50,000).
EG: if the highest income was £65,000, and child benefit received was £1,331 (which is the 20234/25 annualised rate for one child) then the charge would be:
- £5,000 of excess income at 2% per £100 = 25%
- £1,331 x 25% = £333
The effect of the tapering is to clawback the Child Benefit progressively between £60,000 and £80,000 of income (as at £80,000 the clawback percentage at 1%/£200 would be 100%). For 2023/24 and earlier years, clawback was between £50,000 and £60,000.
Specific rules cater for households coming together and separating in year, claims to Child Benefit that start or finish in year, and to situations of guardians / absent parents. These are beyond the scope of this briefing note.
The main planning point for clients is ensuring that joint income is allocated as efficiently as possible. As always this needs to be a rounded consideration, taking into account Tax, NI, asset ownership, estate planning and other variables.
In Spring budget 2024 it was announced that HIBC was to be reformed to work on a joint household income basis; in Autumn Budget 2024 this proposal was withdrawn:
“The government will not proceed with the reform to base the HICBC on household incomes. This is because it would have come at a significant fiscal cost of £1.4 billion by 2029-30 if setting the threshold to £120,000-£160,000, where no families would lose out.123 To make it easier for all taxpayers to get their HICBC right, the government will allow employed individuals pay their HICBC through their tax code from 2025, and pre-prepopulate Self Assessment tax returns with Child Benefit data for those not using this service. The government will also explore how better data use and sharing across government departments can improve the targeting of economic support to households, especially in times of crisis.”
