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 simply the charge applies when either you or you  partner receive Child Benefit, and one of you has 'net adjusted income' exceeding the earnings threshold. Moreover, 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. What's more, the claw back is tapered applying to earnings between the adjusted Net Income threshold and the upper limit. 

The earnings threshold has now increased to £60,000 from 6 April 2024 and the upper limit to £80,000. Additionally, you can elect not to receive Child Benefit. Moreover, this avoids the necessity of making the calculation which we'll discuss in more detail below.

What is adjusted net income?

HMRC regard this as your taxable income less certain reliefs such as pension contributions and charitable donations. Additionally, more specific details about qualifying reliefs reducing your adjusted net income can be found here.

Making an election

An election can be made not to receive Child Benefit. Therefore, The High Income Child Benefit Tax Charge no longer applies. However, it's 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'll benefit from making a Child Benefit claim as it gives Class 3 National Insurance Contributions (NICs) credits. What's more, this will help contribute towards state pension eligibility.

Additionally, if you earnings exceed the upper limit of £80,000, it may be worth your partner claiming Child Benefit to obtain the NIC credits. Besides. it is possible to claim Child Benefit though ask not to receive the payments. Therefore you'll avoid the requirement to repay Child Benefit through the Self Assessment system.

With these changes, reviewing your situation for the 2024/25 tax year would make sense. For example, if you're earning £65K per annum in the  2024/25 tax year the charge will only claw back only 25% of the child benefit.

Previously, the whole amount would have been clawed back at this level. So in this case, the person earning £65K may wish to consider claiming child benefit to keep 75% of it.  

Tip for future planning

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.

Additionally, 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].

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