Spring Budget 2024 – Sweeping reforms to High Income Child Benefit Charge (HICBC) current regime

Child benefit can be claimed if you’re responsible for a child under 16, or under 20 if they are in full time education. The current rates, until 5 April 2024, are £24 per week for the first child and £15.90 for any other children.

However, this is clawed back via a tax charge (the High Income Child Benefit Charge (HICBC)) where the adjusted net income* of either the claimant or their partner exceeds £50,000. The charge is 1% of the Child Benefit for every £100 of adjusted net income in excess of £50,000, which means that the whole amount of Child Benefit claimed is clawed back once the individual’s income exceeds £60,000. The HICBC is reported on the self-assessment tax return.

The £50,000 threshold has remained the same since January 2013, rather than increasing with inflation, which means that the number of people being brought into the charge has doubled from original predictions. HMRC has access to information from the Child Benefit Office, and we have seen a number of letters from them over the past few years regarding unpaid HICBC. It appears that they are a few years behind, dealing with tax years 2019/20 and 2020/21, but if you have any queries about the impact of any Child Benefit claims on your tax position, then please do not hesitate to contact your Mercer & Hole tax adviser.

The current system is considered to be unfair, as a household with two parents each earning £50,000 a year (£100,000 in total) will receive Child Benefit in full. However, a household with one parent earning £60,000 and the other with no income (£60,000 in total), or a single parent earning over £60,000, will have their Child Benefit clawed back in full.

Going forward

To support those who claim Child Benefit, the government has committed to take the following actions:

1. From 6 April 2024, the government will raise the threshold for HICBC to £60,000 (currently £50,000). The rate of the charge will also be halved to 1% of the Child Benefit for every £200 of adjusted net income in excess of £60,000, which means the full amount of Child Benefit will only be reclaimed if the individual or their partner’s income exceeds £80,000 (currently £60,000). As a result, the government estimates that nearly half a million families will gain an average of £1,260 in 2024/25.
2. From 6 April 2026, the government will move to a system based on household income, rather than individual incomes. Although this will address the unfairness in the current system, it is not clear how this will be done logistically as HMRC do not currently have access to this level of data. It may be that this information will need to be reported via the self-assessment system, so we are watching this space…

Should you have any enquiries, please contact Robin Edwards or a member of the Private Client team. We are committed to helping you and your family with your financial affairs.

*Adjusted net income is total income less the gross amount of any Gift Aid payments or personal pension contributions made during the year.