High Income Child Benefit Charge - 2024-25
These rules are for the 2024/25 tax year after the recent changes to the child benefit thresholds. Please see
here for the previous tax year 2023-24.
The Child Benefit High Income Charge
If you or your spouse have an adjusted income over £60,000, you may be required to repay child benefit. You must notify HMRC and repay any charge, if you do not complete a self-assessment tax return. If you make pension contributions or gift aid donations, you may extend the £60,000 threshold.
Highest effective marginal rate of tax
A couple earning £120k as 2 x £60k each will not need to repay any child benefit, but this has been earmarked for review in the Spring 2024 budget and plans are afoot to treat the tapering with household income. However, for a household with a parent with children who already earns £60k, the effective marginal tax rate for further earnings is a staggering. Depending on how many children they have merely increases this effective rate and those caught by the child benefit charge pay the highest rate of effective marginal tax in the UK.
Adjusted income above £60,000
Where an individual in a household has adjusted income above £60,000, Child benefit is repayable. Remember, all income is included, such as bank interest and dividends when arriving at adjusted income, as well as deductions for pension contributions and gift aid donations. If you are registered for Self-Assessment, it is due to HMRC by 31 January, following the end of the tax year on 5 April. If you are not registered for Self-Assessment you should contact the child benefit office to repay.
Income between £60,000 and £80,000
The repayment charge is tapered for adjusted income between £60k to £80k; 1% for every £200. So if you earn £70,000 and have child benefit of £1,000 a year, you would repay 50%, which is £500.
Someone else’s child, but your tax bill!
If the child in your household is not your own, the rules will still apply based on ‘household’ circumstances. All the earners must be considered if a household member claims Child Benefit. If you are a higher-rate taxpayer and even temporarily move in with a partner who earns less than you and has children from a previous relationship which they claim child benefit for, you will be liable for their child benefit claim. HMRC can chase for repayment of this many years later.
The HM Revenue & Customs Child Benefit Charge calculator is useful for what you may be liable to repay.
Reducing your liability to the charge
The total income figure used by HMRC to decide whether you should pay the High Income Child Benefit Charge is calculated after considering donations to charity, pension contributions and sole trade losses. This is why the £60,000 is called adjusted income and not necessarily your employment income. If you make charitable donations or pension contributions, the gross value of these payments is deducted from your other income when considering the £60,000 and £80,000 limits. Therefore, even if your income is marginally above £80,000, you may remain entitled to some Child Benefit payments after taking these additional items into account.
For example, if you earn £65,000 and are part of a salary sacrifice pension scheme at work and agree to pay £5k into a pension so that your taxable pay is £60k, you would not be liable to the charge.
If you started to receive some property rental income profits of £20k during the year, you would be liable for 100% of the charge – but by putting £16k into a pension, this would be a gross payment of £20k (as HMRC adds the 20%) you would still retain your child benefit in full.
Tax tip! If your spouse does not already hold shares in your company, you may wish to alter the company shareholding so that you can distribute dividend income to ensure each shareholder does not receive a total income exceeding the higher rate band of £50,270 or exceeds the £60,000 threshold for repaying child benefit.
Child benefit in the year of separation
Your earnings for child benefit are treated annually, not what they were at the date of separation. The charge is still levied on the highest earner, using their annual income to the date of separation. Notifying the Department for Work and Pensions is very important, so they do not expect repayment on a full year of child benefit.
As an example, if a taxpayer separated on 31 December and notified the DWP and had an adjusted income of £70,000 to 5 April and received child benefit annually of £1,800:
9/12 = 75% of the tax year
(80k-70k)/20k = 50% child benefit charge
75%x 1,800 x 50% = £675 due to HMRC
Tax tip! As the charge is worked out annually, not on your income until the point of separation, it may be beneficial to avoid taking further dividends from your company until the following tax year if you would otherwise trigger this charge.
Is there any benefit of claiming child benefit if I have to repay it?
There are a few benefits;
1. You have the cash flow benefit until you have to repay it
2. You will not need to manually apply for a NI number for your child when they turn 16
3. If you are not working and claim child benefit, you will protect your entitlement to national insurance credits, including receiving a state pension credit (you need 35 for a full pension), so you should still claim the child benefit even if you choose not to have it paid
Cancelling child benefit
You can cancel it here if you no longer want to receive child benefit.
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