Understanding High Income Child Benefit Changes

Updates to the High-Income Child Benefit Charge (HICBC) for the tax year 2024/25 introduce significant adjustments that will impact many families.

The key change involves raising the threshold at which the charge begins, from ￡50,000 to ￡60,000.

This article explores the implications of these changes, the differences in impact on single- and dual-income families, and what to expect in the future.

The Raised HICBC Threshold and Its Implications

The HICBC will apply to households where the higher earner's adjusted net income exceeds ￡60,000 – this is following the start of 2024/25 tax year, which started April 6th 2024.

This marks a ￡10,000 increase from the previous threshold of ￡50,000, which had been in place since 2013.

The calculation of the charge remains consistent, with a 1% reduction in Child Benefit for every ￡200 earned above the new threshold.

This means that by the time the higher earner's income reaches ￡80,000, the Child Benefit will be entirely reclaimed.

The updated threshold is expected to alleviate the burden for many families, with an estimated 170,000 individuals likely to no longer be subject to the charge.

Additionally, approximately 485,000 families will benefit from reduced liabilities, making this a substantial change for many.

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How the HICBC Affects Dual-Income and Single-Income Families

The HICBC has been a point of contention, particularly regarding its perceived fairness between single- and dual-income families.

Under the current rules, a single-income family with one parent earning ￡80,000 will lose the entire Child Benefit.

In contrast, a dual-income family where each parent earns ￡60,000 would not be affected, even though the household income is significantly higher.

This disparity has led to calls for reform, and the government has announced plans to address this issue.

From April 2026, the HICBC calculation will shift to consider total household income rather than just the income of the highest earner.

This change aims to create a more equitable system that reflects the realities of modern family structures and income distribution.

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Impact of the Changes on New Child Benefit Claims

For families who do not currently claim Child Benefit, the increase in the threshold may make it financially advantageous to apply.

New claims can be backdated for up to three months or to the child's birth date, whichever is later.

However, for claims made after 6th April 2024, backdated payments will be treated as falling within the 2024/25 tax year to prevent a HICBC liability in the 2023/24 tax year.

This provision helps to avoid unexpected charges and provides clarity for families navigating the new rules.

It is important for families to review their eligibility and consider the benefits of claiming Child Benefit under the updated thresholds.

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Considerations for Lower-Income Partners

One of the complexities of the HICBC is that it applies based solely on the income of the higher-earning partner.

This can create challenges for lower-income or non-earning partners, who may find themselves in a household subject to the charge without a corresponding income increase.

Moreover, some families may choose not to claim Child Benefit to avoid the HICBC, which can have unintended consequences.

Not claiming can lead to missed National Insurance (NI) credits, which are important for building entitlement to state pensions and other benefits.

Furthermore, children whose parents do not claim Child Benefit may not automatically receive a National Insurance number at age 16, complicating future administrative processes.

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Filing a Tax Return and Compliance

Individuals affected by the HICBC are generally required to register for and file a self-assessment tax return, even if their income is primarily from PAYE.

This requirement can introduce an additional administrative burden and potential penalties for non-compliance.

It is crucial for affected individuals to ensure they are fully compliant with tax reporting obligations to avoid fines and other issues.

Summary

These changes present an opportunity to review your financial planning strategies, especially regarding Child Benefit claims and tax liabilities.

Staying up to date on changes which affect you and your financial security are crucial for keeping your finances in check.

At Tax Expert, we provide these updates, as well as offering our expertise on tax regulations to help you optimise your financial strategies.

Contact us today at?[email protected], or?fill out our form here to find out how we can help you adjust and adapt your tax strategy.

For any questions, please give us a call 01772 788200, or message us on our WhatsApp for out of office hours