High Income Child Benefit Charges

If you or your partner is a high earner, you may not think you are eligible for child benefit. However, there are some good reasons to still consider a claim to protect your future state pension – even if you don’t end up with all/any of the money.

What is child benefit and how does it work?

Child benefit is money paid by the government to anyone responsible for bringing up a child, helping towards the cost of everyday necessities such as food and clothing.

Only one person can claim child benefit on behalf of a child, but you can claim for each child in your care. It is usually paid every four weeks, straight into the claimant’s bank account.

Child benefit rates

  • All the child benefit if you earn less than £50,000
  • A tapered amount if you earn between £50,000-£60,000
  • Nothing if you earn above £60,000

What is the high-income child benefit charge?

If you or your partner earn more than £50,000 a year, you will be caught by the high-income child benefit charge (HICBC), under which you will have to repay some or all of the money depending on your salary. Failure to follow these rules can result in a penalty.

How does the child benefit tax charge work?

The HICBC increases gradually for taxpayers with incomes of between £50,000 and £60,000.

You repay 1% of the benefit for every £100 of income you earn above £50,000. So, for example, someone earning £55,000 a year would have to repay half the child benefit they receive that tax year. 

If one partner in a couple earns more than £60,000 a year, the full amount of the family’s child benefit has to be paid back.

Why claim if I earn over £50,000?

There is a very good reason to do so, even if you don’t actually end up with the money.

The reason is that a non-earning partner in a household, and some lower earners, should claim child benefit in their name because this builds up their national insurance contributions and protects their eligibility for the full state pension. Eligibility can be threatened if an individual has given up work or taken time out to raise children.

Who should claim?

Women are particularly vulnerable if they become stay-at-home mums and then end up with reduced pensions later in life because they have gaps in their national insurance record.

People earning less than £9,568 a year should also claim the benefit in their name because this is the threshold below which you do not make national insurance contributions

If you or your partner’s income is above the £50,000 threshold for the full amount of child benefit, you can choose to:

  • Receive the benefit and repay any charge at the end of each year through your self-assessment tax return, or
  • Sign up for child benefit but opt out of receiving it, and not pay the tax charge.

If you earn above £60,000, your options are:

  • Receive the benefit and repay it in full at the end of each year through your self-assessment tax return
  • Alternatively, register for national insurance and opt not to receive child benefit payments, meaning you would not have to pay any money back. This is the best option for someone earning more than £60,000.

How is the high-income child benefit charge calculated?  

The HICBC means:

  • You have to repay 1% of the benefit for every £100 of income you earn above £50,000
  • All of it for earnings above £60,000

It is calculated according to the adjusted net income of each partner in a couple.

Adjusted net income means your total taxable income, so not just your salary but also money from any other sources.

What counts towards your income includes:

  • A work bonus
  • An eBay business
  • Savings interest
  • Dividends from shares
  • Rental income from a property

Because the charge is worked out on the basis of individual rather than household income, this can cause confusion.

High-income child benefit charge calculator 

To work out how much tax you might have to pay on child benefit as a higher earner, use this government calculator https://www.gov.uk/child-benefit-tax-calculator.

How to pay the child benefit tax charge

If your or your partner’s income is over the threshold for the HICBC, you can choose to receive child benefit payments and then pay back any tax due at the end of each tax year.

You do this by submitting a self-assessment tax return.

You will need to do this even if you are employed and earning through PAYE.

How to avoid paying the high-income child benefit charge 

Higher earners risk being caught in a “child benefit trap” if they are earning more than they thought or are unaware of the threshold.

You may find that even if your salary is less than £50,000, you actually earn more than that in a year when you add in work benefits such as private medical insurance from your employment or a bonus.

There are ways to dodge the £50k child benefit trap.

You can reduce your taxable income to keep yourself under the threshold by:

  • Paying more in pension contributions
  • Making cash gifts to charity under Gift Aid before the end of the tax year
  • Leasing a car through your company’s salary sacrifice scheme, if this is offered

Penalties for not paying the charge

It is your responsibility to inform HMRC if your circumstances change and you become liable for the HICBC.

This may be because you:

  • Have had a pay rise
  • Got a work bonus
  • Started a new job
  • Have a new live-in partner

If you fail to notify HMRC, or you send in a tax return that isn’t accurate, you could face a fine of 10%-30% of the tax owed, plus interest, unless you have a reasonable excuse.

If you disagree with the amount of HICBC you have been charged, HMRC has an appeals and reviews process.

This involves appointing a neutral specialist officer to help resolve a dispute. Or you can apply for your appeal to be heard by an independent tribunal.

Need more help with the high-income child benefit charge? 

If you would like to find out more or how this affects you please contact us on 020 3915 8585.