The March Budget: Time to review the unfair High Income Child Benefit Charge?

The High Income Child Benefit Charge (“HICBC”), introduced as recently as 2013, was brought in around the same time as the top rate of income tax for high-income earners was dropped from 50p to 45p - an attempt to bring fairness to the tax system. However, since its inception, the HICBIC has proven to be a highly unfair tax for middle-income families. Even the Chancellor himself, Jeremy Hunt, has admitted that the structure of the HICBC is unfair.

How does the HICBIC work?

In a two-parent household, if each parent has an adjusted net income of £49,000, they receive a full child benefit payment. The same is true for a single-parent household if the solo parent earns up to the same amount.

However, if one parent's adjusted net income goes over £50,000, whether they are in a couple or a single-parent household, the child benefit payment is clawed back and payments stop completely when income reaches £60,000. However, if one parent earns £60,000 and the other parents earn nothing, the family loses the whole benefit, and the same is true if a single parent, who earns £60,000 or more.

Bearing in mind the frozen tax-free thresholds for some time now, more families are now being impacted by HICBIC, and many may not even realise it, as HMRC do not automatically stop payments when you go over the £50,000 threshold. Instead, you need to self assess via a tax return annually and pay some or all of it back, depending on your income that tax year.

What might change at the March Budget?

Many have spoken out on the unfairness of HICBIC, including MPs in the Conservative Party, and there is a push to revisit HICBIC to make it more fair, especially for middle-income families.

The HICBIC threshold of £50,000 has not increased in line with inflation since it was first introduced in 2013. If the government were to lift the threshold following the Bank of England’s Consumer Price Index inline with inflation, then the start of the threshold would be lifted to £67,100 versus the current £50,000, and the point at which child benefit would be withdrawn completely would be £80,500.

If this were to happen, the HICBIC would reflect its initial intent of only impacting high-income families, not middle-income earners as well, as it does now.

Are you impacted by HICBIC?

If you think you may need to pay HICBC, you can check how much you need to pay back and when via the HMRC Calculator. If yours or your partner’s income goes over the £50,000 annual threshold, after taking into consideration tax reliefs and pension contributions, some of your child benefit payments will be clawed back.

If you are impacted, you will need to complete a self-assessment tax return annually, declare your income and calculate the HICBIC due.

Alternatively, you can opt out of receiving child benefit here.