The High Income Child Benefit Charge

What is the High Income Child Benefit Charge?

The High Income Child Benefit Charge (HICBC) provides for Child Benefit to be clawed back through the tax system from families where the highest earner has an income above a set threshold. Prior to 6 April 2024, this threshold was £50,000. The tax charge was equal to 1 per cent of the total Child Benefit received for every £100 earned over £50,000. This meant that someone’s Child Benefit payment was withdrawn completely when their income reached £60,000. The HICBC threshold was increased to £60,000 from 6 April 2024, while the taper was halved. As a result someone’s child benefit will be withdrawn completely when their income reaches £80,000.

The HICBC is collected by HM Revenue & Customs (HMRC) through self assessment. Individuals who are liable to pay it are required to file an annual tax return if they do not already do so.

In October 2010 the then Chancellor George Osborne announced proposals for withdrawing Child Benefit from families with a higher rate taxpayer. Subsequently Mr Osborne revised these plans in the 2012 Budget, announcing the introduction of the HICBC from January 2013.

How many people pay the HICBC, and how much does it raise?

The numbers of taxpayers declaring a liability to the HICBC, and the tax revenue received, has fluctuated since the HICBC was introduced. HMRC’s most recent estimates cover the 2021/22 tax year: in this year 390,000 individuals paid a total of £450 million of HICBC liability.

What concerns have been raised about the design and operation of the HICBC?

Since it was introduced there have been concerns about two aspects of the design of the HICBC:

• the decision not to increase the £50,000 threshold since the HICBC was introduced, and
• the fact that the HICBC is based on the income of the highest earner in a household rather than the income of the whole household. As a result dual income families on £49,000 each (with a household income of £98,000) may not be liable to the HICBC, but a single parent earning over £50,000 could be.

The decision not to increase the £50,000 threshold has meant the number of people liable to pay the HICBC has grown. There have also been concerns about the number of taxpayers who have been charged penalties for failing to register their liability and pay the charge through their tax return.

Individuals who have been awarded Child Benefit may make an election not to receive this payment, rather than pay the HICBC. There have also been concerns that some families have decided not to claim Child Benefit, without being aware of the potential impact this may have on their entitlement to ‘contributory’ benefits (those social security benefits that National Insurance contributions and credits count towards).

What changes to the HICBC were announced in the Spring Budget 2024?

In his Budget statement on 6 March 2024, the then Chancellor Jeremy Hunt announced that the HICBC threshold would be increased from £50,000 to £60,000 from 6 April 2024. In addition, the taper for the HICBC – the amount that Child Benefit is withdrawn for incomes above the threshold – would be halved. As a result, from the start of the 2024/25 tax year, Child Benefit will be fully withdrawn if the higher earner has an income above £80,000. These two changes were forecast to cost £540m in 2024/25, rising to £660m in 2028/29.

Mr Hunt also announced that the government would consult on reforming the HICBC so that it would be based on household income, not individual income. It was anticipated that this measure would be implemented by April 2026.

Following the Labour Party’s victory in the General Election on 4 July 2024 the Chancellor Rachel Reeves presented the government’s first Budget on 30 October. As part of the Budget the government announced that it would not proceed with the proposed reform to base the HICBC on household incomes.

This briefing gives a short background to the introduction of the HICBC and long-standing criticisms that have been made of its design. It goes on to discuss the concerns that have been raised about its operation and the debate as to how it might be reformed. It concludes by discussing the proposed reforms announced by the then Chancellor Jeremy Hunt in Spring Budget 2024, and the modifications to these plans announced by the Chancellor Rachel Reeves in Autumn Budget 2024.