How will the new High Income Child Benefit Charge affect you?

Amongst the changes made by the Chancellor in the Spring Budget, there was a modification to the High Income Child Benefit Charge.

The adjusted net income threshold at which child benefit will begin to be withdrawn has been increased from £50,000 to £60,000.

The new threshold will come into effect from 6 April this year.

But how will this impact you?

Understand the ins and outs of the new threshold to ensure you remain compliant and receive the benefits you are entitled to.

The changes

The threshold has risen for the first time since 2013, meaning half a million families will receive more child benefit than they do now.

Child benefit is currently paid at £24 per week for one child but this will rise to £25.60 in April.

For each additional child, child benefit is paid at £15.90 per week however this will also rise to £16.95 from next month.

The rate of taper has also been halved in comparison with where it is now.

A benefit has previously been withdrawn on a tapered basis where an income band is between £50,000 and £60,000.

Under the new measure from Jeremy Hunt, this action will now only occur between £60,000 and £80,000.

If you are an individual with an income over £80,000, the tax charge will equal the amount of your child benefit payment.

For example, if you have an income between £60,000 and £80,000, then the rate at which HIBC is charged will be halved and will equal one per cent for every £200 of income that is more than £60,000.

What will this mean for you in the long-term?

Under the new rules, child benefit is withdrawn when one parent has an adjusted net income of £60,000 or more a year.

Adjusted net income relates to an individual’s total taxable income before any personal allowances and less certain tax reliefs.

These include pension contributions or trading losses (if you are self-employed).

For example, if you and your significant other earn £59,000 a year then you will receive the benefit in full despite earning a joint £108,000 – child benefit, however, is withdrawn when one parent earns over £60,000 even if the overall household earn is less.

It has been referred to as a ‘tax on children’ and previously resulted in many parents repaying some or all of the benefit.

But, under the new measure, 170,000 families will now avoid paying back any benefit in the 2024-25 year.

The Government estimates 485,000 families will gain an average of £1,260 in child benefit – and you could be one of them.

If you have two children, you might gain up to £2,212 a year so it is important you understand how the changes affect you and what you need to do to receive the new financial benefits.

Is there anything you need to do?

Overall, you need to be aware of and understand how to use HICBC as this is a policy that still impacts your tax if not correctly followed.

Complexities might still arise if your adjustable next income fluctuates or if your family circumstances change.

The changes that take place from 6 April should not affect how individuals who receive child benefit payments engage with HMRC.

If you have an income higher than the new HICBC threshold when it comes into effect, then you will continue to be required to complete a Self-Assessment tax return to pay HICBC.

You should know that new claims to child benefit will automatically be backdated by three months, or to your child’s date of birth (whichever is later).

For any claims made after 6 April this year, backdated payments will be treated for HICBC purposes as if the entitlement fell in the 2024-25 tax year.

This happens if the backdating would otherwise create a HICBC liability in the 2023-24 tax year.

The changes to HICBC can be tricky to navigate so you need to know the ins and outs of the new changes as well as seeking the advice of our expert accountants to ensure you remain compliant with your tax obligations and know how you might be affected.

If you would like to know how the new High Income Child Benefit Charge might impact you, please contact us today.

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