Child benefit charge changes confirmed

Changes to benefit charge

For 2024/25, the high income child benefit charge (HICBC) does not apply until income exceeds £60,000, a £10,000 increase from the previous threshold of £50,000. This means:

• A parent earning £60,000, who would previously have lost all of their child benefit claim, now keeps the entire amount.
• The rate of withdrawal is halved, so child benefit is not fully withdrawn until an individual’s income reaches £80,000 (previously £60,000). The charge now removes 2% of child benefit for every £100 of income over £60,000.
• Once income reaches £80,000, the charge is 100%. Therefore, the child benefit claim is effectively reduced to nil.

Despite the changes, the HICBC can still mean a high effective marginal rate of tax.

Calculating income

A recently lost appeal to HMRC shows the importance of correctly calculating income for threshold purposes.

The taxpayer’s basic salary did not exceed the former HICBC income threshold of £50,000, but for the seven years under investigation he had overlooked the taxable benefit from having a company car. This was sufficient to take income over £50,000, so the charge was payable.

Taxpayers therefore need to be particularly careful when calculating income:

• Savings income is likely to be much higher than previously given increased interest rates. The gross amount is included, ignoring the £500 savings allowance.
• Dividend income, including reinvested dividends, has to be included ignoring the £500 dividend allowance.
• Income from a lodger within the £7,500 exemption is ignored, as is any income within an individual savings account.

The gross amount of pension contributions and gift aid donations reduce the income figure, providing a useful tax planning opportunity where income is between £60,000 and £80,000.

Don’t forget to extend child benefit claims for 16- to 19-year-olds who continue in approved education or training. This can be done online or using the HMRC app.