High Income Child Benefit Tax Charge changes

One topic in The Spring 2024 Budget which caught our attention was the changes to the High Income Child Benefit tax charge. As we've written about this previously ,we're now going to provide you with an update.

High Income Child Benefit Tax Charge

What is the High Income Child Benefit Tax Charge?

Put very simply the charge potentially applies when either you or you  partner receive Child Benefit, and one of you has 'net adjusted income' in excess of the earnings threshold. From 6 April 2024 the earnings threshold has increased from £50,000 to £60,000 per annum.

How does it work?

Essentially a percentage of the Child Benefit received is clawed back from whoever has the highest earnings. The claw back is tapered so that it applies to earnings between the Adjusted Net Income threshold which is currently £50,000 per annum  (increasing to £60,000 from 6 April 2024. If you earn in excess of the upper limit of £60,000 (£80,000 from 6 April 2024) you can elect to no longer receive Child Benefit thus avoiding the necessity of making the calculation. We'll discuss this in more detail later on this post

What is adjusted net income?

Generally speaking, HMRC consider this to be your taxable income less certain reliefs such as pension contributions and charitable donations. More specific details about reliefs that qualify to reduce your adjusted net income can be found here.

Making an election

An election can be made not to receive Child Benefit. If that's the case then The High Income Child Benefit Tax Charge will no longer apply. It is only usually worthwhile making the election, if the adjusted net income of one partner is in excess of the Income Threshold in a tax year.

Effect of the proposed changes

If your partner is a low earner, they will benefit from making a Child Benefit claim as it gives Class 3 National Insurance Contributions (NICs) credits which will help contribute towards state pension eligibility.

Even if you earn in excess of the upper limit of £60,000 (£80,000 from 6 April 2024), it may still be worth your partner claiming Child Benefit to obtain of the credits. It is possible to claim Child Benefit though ask not to receive the payments, thus avoiding the requirement to repay Child Benefit through the Self Assessment system.

Given the recent changes you may want to review your situation for the new tax year starting on 6 April 2024. If you're earning in excess of £65,000 per annum currently, the full amount of Child Benefit may be clawed back. However, at this level of earnings for the  2024/25 tax year the charge will only claw back only 25% of the child benefit. Therefore, the person may wish to consider claiming child benefit to keep 75% of it.  

You could therefore consider revoking a previous election not to receive child benefit by reinstating a a claim online with HMRC. Child Benefit is normally reinstated from the week commencing after the claim is made.

Child Benefit may also be reinstated for the previous year provided that notice is given within two years of the end of the relevant tax year concerned. Plus no benefits were received in that year and no other person would have been liable to the High Income Child Tax Benefit Charge in that year.

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

Alternatively, please feel free to complete our Business Questionnaire here.

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