High income child benefit charge thresholds changes from April 2024

In the Spring Budget earlier this month, Chancellor Jeremy Hunt announced that the income threshold for paying back Child Benefit will increase to £60,000 from next month.

As a quick recap, the High Income Child Benefit Charge (HICBC) is a tax charge on families which applies where either parent earns over £50,000 per annum, and imposes an extra tax charge on that parent, based on the amount of Child Benefit either parent has received in that tax year.

Once either parent earns over £60,000 per annum, the HICBC is equal to the Child Benefit received, meaning that you effectively have to pay the whole lot back to HMRC.

The way it works currently, is that for every £100 you earn over the £50,000 lower threshold, you pay back 1% of the Child Benefit received. This means that if one parents taxable income (salary plus benefits in kind plus other income) is £55,000, for example, they have to pay back 50% of the Child Benefit received for their children in that tax year.

Those parents in receipt of Child Benefit that earn over the £50,000 threshold have to complete a Self Assessment tax return, in order to calculate and then pay this punitive tax on families to HMRC.

So, what has changed? The Chancellor announced that the government will move towards a fairer household income test in the future, but this will not happen until April 2026. The reason for this is that the current system can be very unfair, as you could have one parent earning over £50k, while the other earns very little, and they have to pay the HICBC, whereas another couple may earn £49,999 each and they don’t have to pay it. So we are pleased to see that this will now be addressed.

In the meantime, Jeremy Hunt announced that they will increase the HICBC lower and upper thresholds from April 2024. The lower income threshold will increase from £50,000 to £60,000 which is welcome news, while the upper withdrawal threshold will increase from £60,000 to £80,000, meaning that the HICBC will be 1% of the Child Benefit received for every £200 of income over £60,000 from next month onwards, another welcome change.

This therefore means that the Child Benefit received by affected couples will be withdrawn at half of the current rate. For example, under current rules if you earn £8,000 over the lower threshold, the HICBC is equal to 80% of the Child Benefit received, but under the new rules if you earn £8,000 over the lower threshold, the HICBC you will pay is 40% of the Child Benefit received.

In summary: from April 2024 you only start to lose the Child Benefit through the HICBC if either parent earns over £60,000 per annum, and you will only lose it completely if either parent earns over £80,000 per annum. This will be a welcome change for many families.

Any tax planning tips around the HICBC for business owners? Yes, if you have your own company and need to withdraw more than £50k per annum in salary and dividends then this allows a £10k boost in annual income from next year before the HICBC kicks in, and it is well worth considering planning your income (timing of dividends etc) around this. In many cases it might be possible to stay under £50,000 for the current tax year, and then increase to £60,000 for the next tax year. This would be far more tax efficient that having earnings of £55,000 in both years, as you’d then avoid the HICBC in both years. Bear in mind that higher rate tax kicks in once your annual income exceeds £50,270 per annum, but nevertheless, in a world of frozen tax thresholds and high inflation, this will be welcome news for many.