In his Budget speech today, Chancellor Hunt announced changes to the High Income Child Benefit Charge raising the threshold. It’s been in place since 2013 and is judged to be very unfair in many ways. Following the changes announced today, a parent of one child on £60,000 who gets no child benefit currently will get £1,331.20 a year from April while a parent of two children will get £2,212.60 a year from April.
Laura Suter, director of personal finance at AJ Bell, comments on these changes to the high income child benefit charge saying:
“The decision to finally raise the threshold for child benefit is a big boost to higher-rate taxpayer parents. Someone earning £60,000 a year who currently gets no child benefit thanks to the high-income charge will now get the full child benefit each year. For a parent of two children that represents a total of £2,212.60 a year from April – a decent boost for families.
“The increase to the threshold doesn’t quite go as far as raising it in line with inflation – it would have needed to increase to £65,000 to do that. But the fact that it’s withdrawn at a slower pace means families keep more of the benefit as their earnings grow.
“The child benefit system has been ripe for reform for years. So many families have hit the high income charge, and as a result the number of families getting child benefit payments has dropped to its lowest level since records began, with the continual freeze on the threshold hitting more and more parents. According to the latest figures, a total of 683,000 families opted out of getting the payments, accounting for 1.05 million children. If these families had been eligible they could have claimed £1.15 billion in additional support.
“The move to assess child benefit based on a couple’s earnings makes sense, as currently the system punishes single earners. Currently, a sole earner on £60,000 gets no child benefit while two earners each on £49,000 will get the full benefit. Under the new system a sole earner on £80,000 will get no child benefit while two workers on £59,000 will get the full benefit.
“However, the government has kicked the can down the road on sorting out those thorny issues – saying it will consult and then implement in two years’ time. There’s no doubt that it’s a huge administration task for HMRC to assess couples on their household income rather than sole income, meaning there is no easy fix.
“This recent change, coupled with plans to allow parents to claim for missing National Insurance credits and allowing them to do so online all feels like fiddling at the edges of a broken system. With an election looming and parents crying out for more help with childcare support, it feels like the time to dismantle the child benefit system and rebuild it with a less complicated, more common-sense approach that works for families.”
| Annual child benefit from April 2024 depending on salary | |||
| Salary | Child benefit for one child | Child benefit for two children | Child benefit for three children |
| £60,000 | £1,331.20 | £2,212.60 | £3,094.00 |
| £65,000 | £998.40 | £1,659.45 | £2,320.50 |
| £70,000 | £665.60 | £1,106.30 | £1,547.00 |
| £75,000 | £332.80 | £553.15 | £773.50 |
| £80,000 | £0.00 | £0.00 | £0.00 |
| Source: AJ Bell. | |||
How the high-income charge works:
Currently, if either you or your partner earns over £50,099, you’ll lose some of the child benefit on a sliding scale until one of you earns £60,000 – at which point you’re not eligible for any child benefit.
You re-pay the benefit at a rate of 1% of the benefit amount for every £100 you earn over that £50,000 threshold. It means if you earn £55,000, you lose 50% of the benefit – because you’re £5,000 over the limit, and at a rate of 1% per £100, that equals 50%. The exact amount of money you lose depends on how many children you’re claiming for.
From April that ratio will change so that you lose 1% of the child benefit amount for every £200 you earn over the new threshold of £60,000, meaning you lose child benefit at a slower rate than currently. It means that someone earning £70,000 will lose 50% of the child benefit they’re entitled to, while someone on £75,000 will lose 75% of the child benefit amount.
Telling us his view on the changes to the child benefit charge, Shaun Moore, tax and financial planning expert at Quilter said:
“The cost of living in the UK has surged notably since the high-income Child Benefit threshold was created in 2013, and the current ‘high income cap’ of £50,000 has ensnared even some basic-rate taxpayers. It is therefore positive that the Chancellor has announced the threshold will rise to £60,000, and the Child Benefit taper level has been increased from £60,000 to £80,000.
“Using the Bank of England’s inflation calculator this threshold should be £66,727 today, so though this increase is welcome, it still somewhat overlooks the impact of inflation over the past decade. Increasing the threshold is a step in the right direction, and we are pleased to hear that the government will fundamentally reevaluate how household income is considered in the eligibility criteria for Child Benefit to reduce unfairness baked into the system.
“We have long since called for the government to take a more equitable approach by pegging the eligibility for full Child Benefit to a household income of £100,000, rather than focusing on the earnings of a single earner. The government has today committed to consulting on moving to a system based on household rather than individual incomes. This would address the glaring inequity where a dual-income household with each partner earning just under the HICBC threshold can access full Child Benefit and do not face any reduction in benefits, while in stark contrast, a single parent earning slightly over the threshold faces a reduction or total loss of this support after they earn more than the taper level, despite managing on a significantly lower household income.
“While this would introduce more complexity for HMRC into the Child Benefit system, the benefits of rectifying the current system’s unfairness far outweigh these challenges. This approach would not only eliminate the ‘benefit cliff edge’ effect for single earners just above the current threshold but would also ensure the policy more accurately reflects the financial realities of modern families, including dual-income households and the rising costs of childcare.
“Such a change will support families equitably and efficiently, encouraging career progression without the fear of losing essential financial assistance and better aligning with the economic and social shifts in family structures. However, the government’s 2026 implementation target will leave families facing this same issue for some time yet.”
BDO has welcomed the proposed reforms to the High Income Child Benefit Charge which it says should help to reduce an unfairness in the way the charge is applied. Paul Falvey, at tax partner at BDO said:
“While the proposed reforms will address a longstanding unfairness which discriminates against households where there is just one higher earner, there will be significant practical challenges in changing the system so that it takes account of household income.
“While the transition measures are only due to last two years, we wouldn’t be surprised if they are extended beyond this date to allow time for HMRC to overcome these difficulties.”
“The current system has also dragged many more people into the self assessment tax net who will now be released from the administrative burden of filing a tax return. This is a positive move that will be welcomed by many working parents.”
Commenting on the increase in Child Benefit thresholds Justin Corliss, technical manager at Royal London, said:
“The increase in the child benefit thresholds will be a welcome relief for many families. With rates frozen for 11 years and recent wage inflation, the value of the threshold has decreased significantly in real terms. While welcome, it’s currently unclear how the longer term plan to focus on household rather than individual income will be achieved.”
Gianpaolo Mantini, Chartered Financial Planner at Saltus shared his reaction to the Child Benefit changes but stresses that we still need more choice saying: “The changes to Child Benefit will be welcome news to any struggling with the high cost of childcare. Especially in concert with the additional support to childcare providers. There is a strong argument to raise these thresholds and the support for early years even higher. Whilst these measures are meant to improve the financial equation to work, or at least be slightly more attractive than being a stay-at-home parent, for some it, no real choice remains – especially with the lack and cost of wrap-around care. We also need to disassociate the implied suggestion that being in work is a better outcome for the childcare giver and child. This disproportionately affects women – both in the early years and throughout their careers.”
