Many couples may want to restart child benefit claims

The changes to the High Income Child Benefit Charge (HICBC) announced in the Spring Budget have now been incorporated into the latest Finance Bill and are scheduled to take effect from 6 April 2024. The increase in the threshold for the tax charge was good news, although many were lobbying for a charge to be removed completely. HICBC is intended to claw back child benefit where the higher earner in a relationship has adjusted net income in excess of £60,000 (this was £50,000 up to 2023/24). The claw back rate is 1% for every £200 of adjusted net income in excess of £60,000 with full recovery of child benefit where net income is £80,000 or more. Your adjusted net income is your total taxable income (which includes dividends and interest from savings) before any allowances and not including things like Gift Aid.

Rather than pay the tax charge, many couples have chosen not to claim child benefit in recent years. It is estimated that some 180,000 couples eligible for child benefit will no longer be caught by the HICBC and should restart their claims from 6 April 2024. This can be done by using an online claim form.

Example

Fred and Wilma have 2 children for whom they are eligible for child benefit. Fred is the higher earner and his income was £68,000 in 2023/24, which is scheduled to increase to £70,000 in 2024/25. In 2023/24 the HICBC would have been 100% of the child benefit received. Their child benefit for 2024/25 is £25.60 for the first child, then £16.95 for each additional child = £42.55 x 52 = £2,212,60 p.a.

Based on Fred’s £70,000 net income there would now only be a 50% HICBC for 2024/25 of £1,106.30.

Planning

An individual’s pension contributions and payments to charity under Gift Aid have the effect of reducing net income for the purposes of HICBC. Salary sacrifice arrangements agreed with the employer can also be effective in reducing net income for HICBC purposes.

If you would like further guidance on child benefit, please contact 023 8046 1232, or email Martin Back.