The High Income Child Benefit Charge

What is the High Income Child Benefit Charge?

The High Income Child Benefit Charge (HICBC) provides for Child Benefit to be clawed back through the tax system from families where the highest earner has an income above a set threshold. Prior to 6 April 2024, this threshold was £50,000. The tax charge was equal to 1 per cent of the total Child Benefit received for every £100 earned over £50,000. This meant that someone’s Child Benefit payment was withdrawn completely when their income reached £60,000.

The HICBC threshold was increased to £60,000 from 6 April 2024, while the taper was halved. As a result someone’s child benefit will be withdrawn completely when their income reaches £80,000.

The HICBC is collected by HM Revenue & Customs (HMRC) through self assessment. Individuals who are liable to pay it are required to file an annual tax return if they do not already do so.

How many people pay the HICBC, and how much does it raise?

The numbers of taxpayers declaring a liability to the HICBC, and the tax revenue received, has fluctuated since the HICBC was introduced. HMRC’s most recent estimates cover the 2023/24 tax year: in this year 437,000 individuals paid a total of £593 million of HICBC liability.

What concerns have been raised about the design and operation of the HICBC?

Since it was introduced there have been concerns about two aspects of the design of the HICBC:

• the fact that the HICBC threshold has been set at £50,000 since the charge was introduced, up until April 2024, and
• the fact that the HICBC is based on the income of the highest earner in a household rather than the income of the whole household. With the threshold set at £50,000, dual income families on £49,000 each (with a household income of £98,000) may not be liable to the HICBC, but a single parent earning over £50,000 could be.

The decision not to increase the £50,000 threshold has meant the number of people liable to pay the HICBC has grown. There have also been concerns about the number of taxpayers who have been charged penalties for failing to register their liability and pay the charge through their tax return.

Individuals who have been awarded Child Benefit but would be within the scope of the HICBC may make an election not to receive this payment, rather than pay the charge. There have also been concerns that some families have decided not to claim Child Benefit, without being aware of the potential impact this may have on their entitlement to ‘contributory’ benefits (those social security benefits that National Insurance contributions and credits count towards).

What changes to the HICBC were announced in the Spring Budget 2024?

In his Budget statement on 6 March 2024, the then Chancellor Jeremy Hunt announced that the HICBC threshold would be increased from £50,000 to £60,000 from 6 April 2024. In addition, the taper for the HICBC – the amount that Child Benefit is withdrawn for incomes above the threshold – would be halved. As a result, from the start of the 2024/25 tax year, Child Benefit will be fully withdrawn if the higher earner has an income above £80,000. These two changes were forecast to cost £540 million in 2024/25, rising to £660 million in 2028/29.

Following these reforms, HMRC has provisionally estimated that in 2024/25 310,000 individuals paid a total of £360 million of HICBC liability.

Mr Hunt also announced that the government would consult on reforming the HICBC so that it would be based on household income, not individual income. It was anticipated that this measure would be implemented by April 2026.

Following the Labour Party’s victory in the General Election on 4 July 2024 the Chancellor Rachel Reeves presented the government’s first Budget on 30 October. As part of the Budget the government announced that it would not proceed with the proposed reform to base the HICBC on household incomes. Since then the government has not proposed any further changes to the design of the HICBC.