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Higher Income Child Benefit Charge – the ‘forgotten’ tax

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Recently, it was reported an employment lawyer successfully appealed a £250 Higher Income Child Benefit Charge (‘HICBC’) penalty on the basis that they were ‘ignorant of the law.’ Now you would be forgiven in thinking ‘how can a lawyer be ignorant of the law’, but surprisingly a tribunal judge accepted this argument.

In recent years, there has been a spike in the number of tribunal cases where taxpayers are successfully appealing HICBC penalties. Given the number of penalties being reported, it seems to indicate that taxpayers are either unaware of the charge or unaware that their adjusted net income for HICBC purposes had gone over the relevant threshold.

Katherine Robinson explains the HICBC in more detail and why over the next couple of years it is important for taxpayers to keep an eye on their income to ensure that they don’t unwittingly fall foul of the rules.

What is the Higher Income Child Benefit Charge?

This charge was introduced in 2013 in order to allow HMRC to claw back payments of child benefit where either a taxpayer or their partner had adjusted net income in excess of the threshold (‘the relevant threshold’).

The scope of the charge includes situations where a taxpayer lives with their partner who is in receipt of Child Benefit for a child living with them, even if the child in question is not related to them.

For HICBC purposes, adjusted net income is:

  • Total taxable income less:
    • Any pension contributions paid gross or where basic rate relief has already been given by a taxpayer’s pension provider.
    • Any donations made under the gift aid scheme.

An unfair system

Prior to 6 April 2023, the relevant threshold was £50,000 and the clawback of child benefit was 1% for every £100 over that threshold, meaning that if one individual within a couple earned over £60,000 within a tax year, child benefit was to be repaid in full by the partner who earned the most.

Given the threshold was based on one partner’s income and not on a couple’s total adjusted net income, it was an unfair system as one couple would have to repay all of the child benefit received if one partner had adjusted net income of £60,000 but no charge was levied on couples that had adjusted net income of under £50,000 each (i.e. up to £100,000 collectively).

What has changed?

In order to make the tax system fairer, the Chancellor announced two changes in the recent Spring Budget:

  • From 6 April 2024, the relevant threshold for the HICBC increased from £50,000 to £60,000 and child benefit would be clawed back 1% for every £200 in excess of £60,000. This means that if an individual had adjusted net income over £80,000, child benefit would be clawed back in full; and
  • From 6 April 2026, the HICBC threshold will be based on a couple’s total adjusted net income rather than on an individual basis. This results in all couples having the same income threshold regardless of how much an individual within a couple earns.

The first change appears to be great news for hard-working families – allowing more families to claim child benefit and taking those with adjusted net income under £60,000 out of the charge altogether.  It seems like an attempt by the Chancellor to win over taxpayers before the next general election later on this year. However, even with the increase in the thresholds, we envisage couples will be caught out by the change from April 2026 onwards, which brings more taxpayers into the HICBC and, as a result. will receive an unexpected tax bill if it is not factored into their tax planning.

As you can see, the recent and anticipated changes make a complex area of taxation even harder to navigate. Our Personal Tax colleagues will be able to help you plan for any charge that may arise and will be able to provide advice on how the charge can be mitigated.