High income child benefit charge: Everything you should know

Becoming a parent is a life-changing experience that shapes who we become for the rest of our lives. But while children may be a gift, they also come with a vast number of financial implications. From school meals to mortgages, there is no end to the considerations which must be kept in mind as our children grow up. 

The Child Benefit scheme is in place to help alleviate the financial burden of raising a child and is typically paid every four weeks. If you and your partner are raising a child together, only one of you will receive this benefit, but it still represents a useful tool for parents.  

However, something that often catches parents out is the High Income Child Benefit Charge (HICBC). This tax charge is designed to lower the amount of Child Benefit if your adjusted net income exceeds a pre-determined threshold. 

In this informative guide, we will explore what the High Income Child Benefit Charge is, to whom it applies, how much you will pay based on your income, and how One Two One Accounts can provide professional support.  

What is the High Income Child Benefit Charge?

As previously mentioned, the High Income Child Benefit Charge (HICBC) is a tax charge that may apply to individuals or couples who receive Child Benefit and have an adjusted net income above a certain threshold.

Essentially, if your income is high enough, you may have to pay back some or even all the Child Benefit you receive. This charge affects anyone receiving Child Benefit payments, whether directly or through their partner.

It is important to note that the High Income Child Benefit Charge is not only about your own children. If you have a child living with you who isn’t your own, but you and your partner contribute equally to their upkeep, the HICBC may still apply if your income is above the threshold.

Understanding the income threshold

To determine if you’re liable for the High Income Child Benefit Charge, you need to understand the income threshold. For the 2024/25 tax year, the threshold is £60,000. For tax years up to and including 2023/24, the threshold was £50,000.

This is not just about your basic salary but rather your “adjusted net income.” This figure includes your total taxable income before any allowances and includes elements like interest from savings and dividends. Calculating your adjusted net income can be cumbersome, so HMRC provides a helpful Child Benefit tax calculator.

Finally, it is worth noting that “partner” for HICBC purposes means someone you are not permanently separated from and who you’re married to, in a civil partnership with, or living with as if you were.

Who pays the charge?

When it comes to couples, the responsibility for paying the High Income Child Benefit Charge rests solely with the partner who has the higher adjusted net income. This is a crucial point to understand.

It makes absolutely no difference which partner actually receives the Child Benefit payments; the higher earner is always the one liable for the charge. The logic here is that the higher earner has the greater financial capacity to cover the tax liability.

Let’s illustrate this with an example. If Jackie earns £65,000 per year and Mark earns £55,000, Jackie will be responsible for paying the HICBC, even if Mark is the one receiving the Child Benefit payments each month. It is Jackie’s higher income that triggers the charge.

The HICBC rules are designed to target the higher earner within a couple, regardless of whose account the Child Benefit is paid into.

Options for parents: claiming and paying or opting out

You have two main options when it comes to Child Benefit and the High Income Child Benefit Charge:

Option 1: receiving Child Benefit and paying the charge

You can choose to continue receiving your Child Benefit payments as normal. At the end of the tax year, you will then need to calculate how much HICBC you owe based on your adjusted net income and pay this through your self-assessment tax return. You can learn more about this in one of our latest blog posts about the self-assessment tax return deadline.

This option might be preferable if you rely on the Child Benefit payments throughout the year and are comfortable with the tax calculation and payment process.

Option 2: opting out of payments

You can choose to stop receiving Child Benefit payments altogether. However, it’s crucial to still claim for Child Benefit even if you opt out of receiving the payments. This is because claiming, even if you don’t receive the money, ensures you continue to accrue National Insurance credits, which count towards your State Pension entitlement.

It also ensures your child receives a National Insurance number, usually before they turn 16, without needing to apply separately. This option can simplify your tax affairs as you won’t have to calculate and pay the HICBC.

For existing claimants

If you are already receiving Child Benefit payments and your income has risen above the threshold, you have the same two options: continue receiving payments and pay the charge or opt out of receiving payments but continue claiming to protect your NI credits and your child’s NI number entitlement. You can change your mind at any time about receiving payments.

The tapered charge: how much will you pay?

The High Income Child Benefit Charge is a tapered system, meaning the amount you pay depends on how far your adjusted net income exceeds the £60,000 threshold. For every £200 you earn above £60,000, you’ll be charged 1% of the Child Benefit you receive. This continues until your income reaches £80,000.

So, if your adjusted net income is between £60,000 and £80,000, the income tax charge will be 1% of your Child Benefit for every £200 of income above £60,000. Crucially, the charge will never be more than the total amount of Child Benefit you receive.

For example, if your adjusted net income is £70,000, you’re £10,000 over the threshold. Thus, the charge would be 50% of your Child Benefit amount.

Once your adjusted net income reaches £80,000 or more, the charge becomes equal to the full amount of Child Benefit you receive. This effectively means you are no better off financially for receiving the benefit, as it’s entirely clawed back through the tax charge.

It is important to note that for couples, this applies individually. While a combined income might be up to £120,000, the HICBC is only triggered if either individual’s adjusted net income exceeds £60,000.

For instance, if one partner earns £65,000 and the other earns £45,000, the higher earner will still be subject to the charge, even though their combined income is below £120,000. The key is the individual income exceeding £60,000.

How is the charge paid? 

As previously stated, the High Income Child Benefit Charge is paid through your self-assessment tax return. It is your responsibility to ensure you pay this charge, even if you do not receive direct contact from HMRC regarding it. Don’t assume you’re exempt just because you haven’t heard anything.

Also mentioned previously, you can choose to stop receiving Child Benefit payments altogether if you prefer not to deal with the charge. However, remember that even if you stop the payments, it’s still vital to claim Child Benefit to protect your National Insurance contributions and your child’s entitlement to a National Insurance number.

How can One Two One Accounts help?

The High Income Child Benefit Charge can be a real stumbling block for parents, as it is easy to get confused by the various thresholds, calculations, and rules. One Two One Accounts understands these challenges and we’re here to support you.

Our expert team can assist you with everything related to the HICBC, from accurately calculating your adjusted net income to optimising your tax strategy to ensure full compliance.

We can also advise on the best approach for your individual circumstances, whether that’s continuing to receive Child Benefit and paying the charge or opting out of payments while still protecting your NI credits. Don’t navigate these complexities alone; contact One Two One Accounts today for a free consultation.