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Budget 2024: Major shake-up to ‘unfair’ High Income Child Benefit Charge unveiled

Budget 2024: Major shake-up to ‘unfair’ High Income Child Benefit Charge unveiled
Paloma Kubiak
Written By:
Paloma Kubiak

The "unfairness" in the current High Income Child Benefit Charge system will finally be tackled, as the Government confirmed it will be based on household rather than individual incomes by April 2026.

In the much-anticipated Budget 2024 – the last before a general election – Chancellor Jeremy Hunt said Child Benefit is crucial to help parents pay for the costs associated in raising children.

But it is “not fair” that a household with two parents each earning £49,000 per year receive Child Benefit in full, while a household earning less overall but with one parent earning above £50,000 having the benefit withdrawn in part or full.

For years, campaigners voiced concern that the system essentially penalised single-parents who earned £60,000, compared to working parents with a combined income closer to £100,000 who were eligible for Child Benefit.

As such, the Government said it is committed to removing this “unfairness” and moving to a system based on household rather than individual incomes by April 2026, “and will consult in due course”.

This means that, under the new system, an individual on £80,000 will not receive Child Benefit, while two working parents on £59,000 will get the full benefit.

Threshold increase

The other major criticism was around the threshold itself. Since the introduction of the High Income Child Benefit Charge (HICBC) in 2013, the £50,000 (net) threshold hasn’t changed, drawing in more families into paying the tax, and having to submit a tax return even if they usually pay tax via PAYE.

Under the HICBC, those with income above £50,000 are required to pay 1% income tax on the Child Benefit for each £100 of income above this. This means the value of Child Benefit is eroded to nil once the taxable income of one of the adults exceeds £60,000.

To date, working parents have returned more than £3.3bn under the charge, while others have opted out of receiving it altogether, which could have big repercussions for National Insurance records and subsequent state pension entitlement. Indeed, Child Benefit claim rates have reduced in the last decade, according to HMRC.

However, today Hunt also confirmed that from April 2024, the Government will raise the threshold for HICBC by 20% to £60,000, with the rate of the charge halved so that Child Benefit isn’t repaid in full until a recipient earns £80,000.

As such, the charge is tapered so for those earning between £60,000 and £80,000, they’re encouraged to claim Child Benefit as they’ll be charged 1% of the Child Benefit for every £200 of income that exceeds £60,000.

Only when income exceeds £80,000 is the charge equal to the amount of the Child Benefit payment.

Hunt added that the Office for Budget Responsibility (OBR) said the immediate changes to the HICBC will lead to an increase in hours worked, equivalent to around 10,000 more people entering the workforce on a full-time basis.

‘Child benefit system ripe for reform for years’

The decision to raise the threshold is a “big boost to higher-rate taxpayer parents”, according to Laura Suter, director of personal finance at AJ Bell.

“Someone earning £60,000 per 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 per year from April – a decent boost for families,” she said.

However, Suter added that the threshold increase “doesn’t quite go as far as raising it in line with inflation”. If that had been the case, it would be closer to £65,000.

She said: “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 £1.15bn in additional support.”

Suter also highlights the date for the reforms.

“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,” she added.