Child Benefit Claims and Adjustments Following Tax Charge Threshold Changes

In the wake of the recent Spring Budget, the High-Income Child Benefit Charge (HICBC) has undergone significant updates, set to impact many families starting 6 April 2024. The Finance Bill now reflects an elevated threshold for the tax charge, a move that, despite not fully meeting the demands for its abolition, has been welcomed as a positive step forward.

The HICBC, designed to progressively reclaim child benefits from higher-earning partners exceeding a specified income, will adjust its parameters: the threshold rises from £50,000 to £60,000, with the reclaim rate pegged at 1% for every £200 of income above £60,000, leading to a full recovery for incomes at or beyond £80,000.

For years, to avoid the complexities and financial implications of the HICBC, numerous couples opted out of claiming child benefits. However, with the new adjustments, an estimated 180,000 couples now find themselves outside the HICBC’s reach, presenting an opportunity to recommence their child benefit claims from 6 April 2024 via an online submission.

Take the scenario of Fred and Wilma, a couple with two children, qualifying for child benefits. Previously, Fred’s income of £68,000 would have incurred a 100% HICBC, nullifying any benefit. However, with his income rising to £70,000 in the 2024/25 period and the revised thresholds, they now face a 50% charge, significantly lowering their tax obligation and increasing their take-home child benefit.

Families can further strategise to mitigate the HICBC through various financial planning techniques, such as making pension contributions, engaging in salary sacrifice arrangements, or making charitable donations under Gift Aid, all of which serve to effectively reduce one’s net income for HICBC calculations.