Over the next three years 35,000 families will need to start repaying their Child Benefit as frozen tax thresholds drag them into being classed as high earners. Many will have no idea they owe money until a letter from the taxman lands on their doorstep.
At present 324,000 families pay the High Income Child Benefit Charge (HICBC), effectively repaying some or all the Child Benefit they receive.
Now, new data from Quilter shows that the government expects that figure to increase to 359,000 by the 2028-29 tax year.
“Tens of thousands more families will be pulled into the High Income Child Benefit Charge over the coming years purely because frozen thresholds let inflation and nominal earnings shifts do the work of tax increases,” says Shaun Moore, tax and financial planning expert at Quilter.
“Families may not be better off in real terms, but more of them will see support withdrawn as a result. The data shows that each successive year more parents will be subject to clawbacks of Child Benefit that eat into household budgets at a time when costs of living remain high.”
How does the High Income Child Benefit Charge work?
HICBC was introduced in 2013 with a £50,000 threshold to claw back Child Benefit from high earners.
Today, if someone in your household earns over £60,000, you must pay HICBC if you claim Child Benefit.
You still receive the full amount – £26.05 a week for your first child and £17.25 a week for further children – but you’ll have to repay some, or all of it, depending on your income.
“Had the starting threshold to pay back child benefit been increased with inflation each year, it would stand at over £71,000 today,” says Charlene Young, senior pensions and savings expert at AJ Bell.
“The system punishes single earner households in particular; a family where both parents earn £60,000 each would not have to repay anything despite a household income of £120,000, but a family where the sole earner brings home just over £80,000 would lose it all.”
How much Child Benefit do I have to pay back?
For every £200 you earn over £60,000 you repay 1 per cent of your Child Benefit.
So, earn £70,000 and you’ll pay back 50 per cent; earn £80,000 or more and you repay the full 100 per cent.
What catches many families out is that the calculation is based on your adjusted net income, not just salary. That includes savings interest, property income and dividends, meaning a bonus or unexpected income can tip you over the threshold.
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“Many families only realise they are caught by the HIBCB after the fact,” says Moore. “It often comes as a surprise when a letter from HMRC arrives or an unexpected tax bill lands, because the charge is not applied automatically and relies on individuals recognising that they are affected and taking action themselves.”
If you are close to or above the threshold, you must tell HMRC. You can do this via your tax return or through PAYE. Paying via PAYE saves paperwork and spreads the cost through the year, but you can only do this if you don’t already have to file a tax return. You can sign up to pay through PAYE at gov.uk.
How can I avoid paying back Child Benefit support?
“The good news is you can legitimately avoid this tax trap, while boosting your retirement savings,” says Young. “Your own pension contributions can reduce the taxable income that is tested against these limits.”
For example, someone earning £62,000, with no other taxable income, could make a £1,600 pension contribution, boosted to £2,000 with tax relief. That £2,000 is deducted from their adjusted net income, bringing it down to £60,000 and avoiding the charge entirely.
A donation to a UK registered charity works in the same way. You gift £1,600 and the charity gets £2,000 including gift aid and your adjusted net income falls by £2,000.
“In both cases, higher rate taxpayers can claim extra tax relief on the pension or charity contribution,” adds Young.
If you earn more than £80,000, you could choose not to receive the payments in the first place. However, it’s usually still worth claiming, as Child Benefit entitles you to National Insurance Credits, which can help you build your State Pension. When you apply, you can opt not to receive the payments, or you can opt out later at gov.uk.
With the thresholds frozen, more families will be dragged into the High Income Child Benefit Charge each year. Checking your adjusted net income now and understanding how you can avoid the charge could prevent an unwelcome letter from HMRC later.
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