In April 2024, the UK government made significant changes to the High-Income Child Benefit Charge (HICBC), which directly impacts families claiming Child Benefit. This change raises the income threshold for families affected by the charge, allowing more parents to claim or retain their child benefit without the financial clawback they might have previously faced.
What is the High-Income Child Benefit Charge (HICBC)?
The High-Income Child Benefit Charge (HICBC) was introduced in 2013 as a way to reduce or reclaim Child Benefit payments from higher-income families. Child Benefit is typically available to anyone responsible for a child under 16, or 20 if they are in full-time education or training. However, if either parent or guardian in the household earns over a certain income, they may have to pay back some or all of the benefit through the HICBC.
Previously, this charge kicked in when a household’s income exceeded £50,000 per year, with a gradual reduction of benefits as income increased. For example, if one partner earned £60,000, they would lose some or all of the Child Benefit. The charge would fully apply if the adjusted income reached £60,000.
Recent Rule Change: Increase in the Threshold
Starting in April 2024, the threshold for this charge was raised from £50,000 to £60,000, which means that families with a higher earner earning up to £60,000 may now retain more of their Child Benefit. This change allows parents with a higher income to keep a larger portion of their benefit, potentially receiving up to £2,214 annually if their income is below the threshold.
This rule adjustment will particularly benefit dual-income families. Previously, a family with one partner earning £60,000 would lose all of their Child Benefit, while a dual-income household earning £60,000 each (a combined income of £120,000) would not face this clawback. Under the new rules, the impact is more evenly distributed, offering relief to families who may have been previously penalised.
How Does the New Charge Work?
The new charge applies to households where the higher earner’s adjusted net income exceeds £60,000. The charge is still calculated as a percentage of income above this threshold. For every £200 earned above £60,000, the benefit is reduced by 1%. The full withdrawal of Child Benefit occurs when the higher earner’s income exceeds £80,000. This is a departure from the previous system, where the benefit was fully withdrawn at £60,000.
This change is expected to reduce the number of families who lose all or part of their Child Benefit, with estimates suggesting that around 170,000 individuals will no longer be subject to this charge
Why This Change Matters for Parents
For families that were previously above the £50,000 threshold, many opted out of receiving Child Benefit because the financial burden of paying it back through tax returns was not worth the small amount they received. However, with the new £60,000 threshold, more families may find it worthwhile to apply for or opt back into Child Benefit, as they will not face the same level of financial clawback.
Moreover, for those with adjusted incomes between £60,000 and £80,000, the new system could mean retaining a portion of the Child Benefit rather than losing it entirely. This offers more financial flexibility for families dealing with the rising costs of living.
Implications for Dual-Income and Single-Income Families
The shift from a £50,000 to a £60,000 threshold particularly benefits single-income families with one high earner. Under the old system, a single-income family with one parent earning £60,000 would lose all of their Child Benefit. With the new rule, they may still keep a portion of the benefit if their income is between £60,000 and £80,000.
On the other hand, dual-income families will see a more equitable adjustment. Previously, a family with two earners each making £60,000 would not have had to pay back any Child Benefit, despite their combined income of £120,000. The new rule ensures that families with multiple earners can claim more support.
What Are the Long-Term Expectations?
Looking ahead, additional changes are planned for the HICBC system. Starting in 2026, the government plans to calculate the charge based on the total household income rather than the income of the higher earner. This aims to address disparities between families with a single high earner versus those with dual incomes.
For now, the increase in the threshold represents a positive step for many families, offering greater support in a time of financial strain due to inflation and rising living costs. It’s crucial for families to check their eligibility and consider claiming Child Benefit, even if they previously opted out
Final Thoughts
The recent changes to the High-Income Child Benefit Charge are an important update that could benefit many families across the UK. With the threshold raised to £60,000, more families will be able to keep some or all of their Child Benefit, reducing the financial strain many have felt in recent years. Families are encouraged to review their eligibility and potentially reapply for Child Benefit to take advantage of these changes, especially with the possibility of backdating claims.
FAQ
What is the High-Income Child Benefit Charge (HICBC)?
The High-Income Child Benefit Charge (HICBC) is a tax charge introduced in 2013 for higher-income earners receiving Child Benefit. If either parent earns over a certain threshold, they are required to pay back some or all of the Child Benefit. The charge is calculated based on the higher earner’s income
What changes have been made to the HICBC rules in April 2024?
As of April 2024, the threshold at which the charge applies has been increased from £50,000 to £60,000. The charge now applies at a rate of 1% for every £200 earned over £60,000, with full withdrawal of Child Benefit occurring at £80,000 of income. This change means that more families will be able to retain at least a portion of their Child Benefit
How does the new system impact families?
Under the new rules, families with a higher earner making between £60,000 and £80,000 will only lose part of their Child Benefit, rather than the full amount. This offers more flexibility and support to families with incomes in this range
How do I calculate my adjusted net income for HICBC purposes?
Adjusted net income includes your total taxable income after deductions for specific items, such as pension contributions, trading losses, and Gift Aid donations. It’s important to consider all these factors when calculating your adjusted income to determine whether the Child Benefit charge applies
If my income is above £60,000, but below £80,000, should I still claim Child Benefit?
Yes, you can still claim Child Benefit, but if your income is above £60,000, you will need to complete a self-assessment tax return to report the High-Income Child Benefit Charge. Depending on your exact income, you may have to pay back part or all of the benefit.
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