2024 spring Budget: Chancellor announces changes to high income child benefit charge
By Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes)
11 March 2024
We take a closer look at the changes to the high income child benefit charge announced in the 2024 Spring Budget.
In the 2024 spring Budget, the Chancellor outlined planned changes to the high income child benefit charge (HICBC) threshold, which has remained at £50,000 since it was introduced in January 2013.
In his speech, the Chancellor recognised that HICBC is often seen as an unfair tax charge. Its reputation for being unfair is based on the disparity caused from how the income is earned in a single household. HICBC can currently apply in single-parent households and households where one taxpayer has adjusted net income above £50,000 and the other adult in the household has a low income. However, a two-adult household with a higher overall household income would receive full child benefit, as long as neither taxpayer has an adjusted net income of more than £50,000.
The government has indicated a preference for an alternative system for HICBC, one that’s based on a household’s earnings rather than individual income. This should be up and running by April 2026.
In the meantime, the Chancellor announced that the HICBC threshold would increase to £60,000 from 6 April 2024. For adjusted net incomes between £60,000 and £80,000, the rate at which HICBC is charged, will also be halved. From April 2024, HICBC will be charged at 1% for every £200 of adjusted net income above £60,000 (as opposed to 1% for every £100 of adjusted net income above £50,000 at present). This means that child benefit will only be withdrawn in full once a taxpayer has adjusted net income of £80,000 (rather than the current £60,000).
Revisiting child benefit claims
The higher threshold may mean that households who have previously opted to not receive child benefit but have income of below £80,000 should consider whether they now wish to claim child benefit from the 2023/24 tax year.
HMRC’s new child benefit online service enables both initial claims and changes to child benefit claims to be handed online. We understand that this has significantly reduced the processing times for child benefit claims being handled by HMRC.
Reforming HICBC in the longer-term
ICAS called on the Chancellor to revisit the threshold, so we welcome the April 2024 changes, but we also recognise the need for wider reform. However, it's important that any such reform does not jeopardise the importance of independent taxation and we are mindful of the challenges that household income brought to the Tax Credits system, especially where there is a change of income or circumstances. We await the proposed consultation on this in due course.
Getting HICBC right for previous years
The new rules don't change the need to declare HICBC right for previous years. From HICBC case law, it’s clear that taxpayers don’t always realise that they are affected. Because the threshold has not changed since its introduction, taxpayers who were not originally liable to HICBC may get caught in more recent years when have when they have received an increase in salary. There’s also a lack of awareness that a taxpayer may be liable to HICBC in respect of their partner's children from a previous relationship.
Clients may not realise that they need to tell their accountant/tax adviser of where there is a change in circumstances and are living with a new partner. Where their partner has children and claims child benefit, it may be impacting their tax position even though they are not the parent of the children in the child benefit claim. However, the new thresholds from April 2024 will reduce the number of households affected by HICBC.
Some households will decide they do not wish to claim child benefit, but it’s advisable to elect to not receive child benefit payments rather than simply cancel the child benefit claim. Although there’s a new national insurance credit coming in from April 2026, which may help those who have a national insurance shortfall because they did not claim child benefit, that does not achieve the reinstatement of a child benefit claim where there’s a change of circumstances. This is because a new child benefit claim can only be backdated by three months.
Let us know your views
We also welcome your views, which help inform our work on consultations or other tax-related matters. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.
Please email tax@icas.com to share your insights and feedback.
