Understanding the Child Benefit Tax Charge: What Taxpayers Need to Know

The Child Benefit is a lifeline for many families across the UK, helping to offset the costs of raising children. However, for those earning above a certain income threshold, the High Income Child Benefit Charge (HICBC) can significantly impact the net benefit received. Understanding this tax charge is essential for effective financial planning and compliance with HMRC regulations. Here, we explain the key details about the Child Benefit Tax Charge and how you can manage its implications.

What is the High Income Child Benefit Charge (HICBC)?

The HICBC applies to individuals or their partners who receive Child Benefit and have an adjusted income of over £60,000 per year. If both partners’ incomes exceed £60,000, the charge applies to the partner with the higher income. This changed from income over £50,000 per year prior to April 2024.

How Does the HICBC Work?

The HICBC effectively reduces the value of Child Benefit as your income increases above the £60,000 threshold. For every £200 of adjusted net income above this limit, 1% of the Child Benefit must be repaid as tax. Once income reaches £80,000 or more, the entire benefit amount is effectively repaid through the charge.

How much is child benefit worth now and what will parents get from April 2025?

Since 6 April 2024, it has been worth:

• £25.60 a week for the eldest or only child
• £16.95 a week for younger children

The government has confirmed that most benefits will increase by 1.7% in April 2025. This means child benefit will be worth:

• £26.05 a week for the eldest or only child
• £17.25 a week for younger children

Example of the HICBC Calculation:

Lets assume you claim for one child and have received £1331.20, annually in Child Benefit and your adjusted income is £70,000:

• Income over the threshold: £70,000 – £60,000 = £10,000.
• Percentage of Child Benefit to be repaid: (£10,000 / 200) = 50%.
• Tax charge: 50% of £1331.20 = £665.60.

This £665.60 would be added to your Self-Assessment tax bill.

Managing the HICBC

There are several ways to manage the impact of the HICBC:

• Opting Out of Child Benefit Payments: If you anticipate your income exceeding the £80,000 threshold, you can choose to stop receiving Child Benefit payments to avoid the charge. However, it is still important to complete the Child Benefit application to ensure you receive National Insurance credits that count toward your State Pension.
• Monitoring Adjusted Income: Adjusted income includes total taxable income minus certain deductions like Gift Aid donations or pension contributions. Making pension contributions or charitable donations can reduce your adjusted income and potentially lower or eliminate the HICBC.
• Tax Planning with an Accountant: Effective tax planning with the guidance of a professional accountant can help you navigate complex rules, optimise your tax position, and ensure compliance with HMRC requirements.

Why You Shouldn’t Ignore the HICBC

Failing to declare Child Benefit on your Self-Assessment tax return can result in penalties and interest charges from HMRC. Since the introduction of the HICBC, many taxpayers have inadvertently found themselves in non-compliance simply by not understanding the rules. Regularly reviewing your financial situation and seeking professional advice is essential to avoid these pitfalls.

How We Can Help

At Munro Bowman, we specialise in providing tailored advice to help families manage their tax obligations effectively. Whether you need assistance with calculating your HICBC, completing your Self-Assessment tax return, or exploring tax-saving strategies, we’re here to support you every step of the way.

Get in touch with us today to book a consultation and ensure you’re making the most of your Child Benefit while staying compliant with HMRC regulations.