Child Benefit – higher earners restart their claims

Spring Budget change means many couples with a high earner may need to restart their child benefit claims

The changes to the High Income Child Benefit Charge (HICBC) announced in the Spring Budget have now been incorporated into the latest Finance Bill and are scheduled to take effect from 6 April 2024. The increase in the threshold for the tax charge was good news, although many were lobbying for the charge to be removed completely.

HICBC is intended to claw back child benefit where the higher earner in a relationship has adjusted income in excess of £60,000 for 2024/25 (£50,000 up to 2023/24). The claw back rate will then be 1% for every £200 of net income in excess of £60,000 with full recovery of child benefit where net income is £80,000 or more (in 2023/24 the claw back rate was 1% for every £100 in excess of £50,000).

Rather than pay the tax charge, many couples have chosen not to claim child benefit in recent years. It is estimated that some 180,000 couples eligible for child benefit will no longer be caught by the HICBC and should restart their claims from 6 April 2024. This can be done by using an online claim form.

Example of change in child benefit rules

Fred and Wilma have 2 children for whom they are eligible for child benefit. Fred is the higher earner, and his income was £68,000 in 2023/24, which is scheduled to increase to £70,000 in 2024/25.

Their child benefit for 2024/25 is £25.60 for the first child (2023/24 £24.00), then £16.95 for each additional child (2023/24 £15.90) = £42.55 x 52 = £2,212.60 p.a. (2023/24 £2,074.80).

In 2023/24 the HICBC would have been 100% of the child benefit received i.e. £2,074.80.

In 2024/25 the HICBC based on Fred’s £70,000 net income will be 50% i.e. £1,106.30.

Planning

An individual’s pension contributions, and payments to charity under Gift Aid, have the effect of reducing net income for the purposes of HICBC. Salary sacrifice arrangements agreed with the employer can also be effective in reducing net income for HICBC purposes.

If you need advice on this issue, contact our Tax Team at tax@thomsoncooper.com.

Other posts you might like:

Year-end Tax Planning Guide 2024-25

With the tax year-end of 5th April fast approaching, our Thomson Cooper year-end tax planning guide is now available. The guide provides insights and summaries of the primary tax reliefs and allowances applicable for the remaining months of 2024/25.

read more

What solutions can tackle Christmas debt?

Once the festive season is over and the bills pile up in January, many feel overwhelmed by Christmas debt. Fortunately, in Scotland there are several structured debt solutions to help you regain control of your finances,

read more

Window on Wealth Winter 2025

Welcome to our Window on Wealth Winter 2025 wealth management newsletter. This edition is packed with articles covering many of the key wealth management challenges and questions currently facing savers and investors.

read more