High-Income Child Benefit Charge and why you need to understand how it works.

Why there's ongoing debate about the effectiveness and fairness of the HICBC

You may be aware of the High-Income Child Benefit Charge (HICBC); but frankly I’m pretty riled by the fiscal drag associated with it. Let me explain. I’ll start with a deeper scrutiny of that title reference to ‘High-Income’.

The HICBC was introduced to clawback child benefit payments from higher-earning individuals or households. If a taxpayer or their partner earns over the £50,000 a year threshold, they are required to pay 1% of the total Child Benefit received for every £100 earned over £50,000. For instance, if you earn £55,000 then you have to repay 50% of the child benefit that you have received in the tax year.

The HICBC was first introduced in 2013, over 10 years ago and the £50,000 threshold not been increased since that date. By comparison, the personal allowance in 2012/13 tax year was £8,105 and now stands at £12,570, an increase over that period of around 55%.

According to published rates, inflation since 2013 amounts to 31.487% to the end of 2023, which if applied to the starting income threshold for the HICBC would increase the £50,000 threshold to £65,744.

Furthermore, considering the current cost of living crisis, rising interest rates and property prices, £50,000 for a household is no longer anything like a ‘high’ income, especially for families in London who have London weighting to take into account. Even families where only one parent earns over £50,000 are caught by the charge, despite the fact there may be no other income for that household.

Aside from the admin burden and financial impact of dealing with the adjustments, the HICBC forces families to wonder whether it’s financially viable to continue receiving child benefit, or indeed opting out to avoid the charge.

But this decision can have broader implications on family finances and planning. One being that claiming the child benefit automatically gives the parent a credit for the state pension. If a parent is earning over £60,000 so would not benefit financially from the child benefit, they may decide not to make a claim at all. Should their health unexpectedly deteriorate, or they suffer redundancy, and they are unable to work for a period of time, they lose the credit they would have otherwise been entitled to from making a claim. It is strongly advisable to always make a protective claim of the benefit to protect your position.

Critics argue that the HICBC creates a financial burden for middle-income families, intensifying inequalities. The policy disproportionately impacts households where one partner earns just above the threshold, leading to calls for an updated and inclusive approach.

As with any government policy, there’s ongoing debate about the effectiveness and fairness of the HICBC. To date there have been no announcements of a revision being planned and with the Government tackling an abundance of issues in the economy, it seems the HICBC is continuing for now unnoticed.

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