Child benefit charge changes confirmed

Taxpayers will benefit from the changes made to the high income child benefit charge thanks to all tax measures from the March 2024 Budget being enacted before parliament was prorogued.

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• The rate of withdrawal is halved, so child benefit is not fully withdrawn until an individual’s income reaches £80,000 (previously £60,000).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.