The High Income Child Benefit Tax Charge (HICBC) was introduced in the UK in January 2013 to reduce the cost of Child Benefit payments to higher earners. It applies to anyone with an income over £50,000 who claims Child Benefit.

How the HICBC Works If either parent or guardian has an income of £50,000 or above, they are liable for the tax charge. It does not matter if they claim the Child Benefit – if their income exceeds the threshold, they will have to pay the charge.

For every £100 earned above £50,000, 1% of the Child Benefit claimed will be clawed back through the tax charge. Someone earning £60,000 would lose 10% of their Child Benefit in tax. Once income reaches £60,000 or more, the tax charge effectively cancels all Child Benefit claims.

Avoiding the HICBC: There are a few options available to avoid or reduce the High Income Child Benefit Tax Charge:

Opt out of receiving Child Benefits.

If neither parent wants to pay the extra tax, the higher earner can opt out of receiving Child Benefit altogether. This removes any tax liability but means missing out on the payments. Opting out can be done by contacting the Child Benefit Office.

1. Adjust income below £50,000. It may be possible for the higher earner to reduce their taxable income, for example, by increasing pension contributions or gift aid donations. This could bring it below the £50,000 threshold and eliminate the tax charge. Care needs to be taken to ensure that any steps taken are within the letter and spirit of UK tax law.
2. Split income more evenly with a partner. If both parents earn over £50,000, spreading the income more evenly between them can reduce the tax charge. For example, the tax charge would apply if one earns £55,000 and the other £45,000. But if both earned £50,000 exactly, neither would pay it.
3. Claim Child Benefit but elect not to receive it. It is possible to claim Child Benefits but elect not to receive the actual payments. This still registers eligibility and protects National Insurance contribution records. As no money is received, there is no tax charge.
4. Delay Child Benefit claim until income falls. Parents can delay claiming Child Benefits until a tax year when their income drops below £50,000. This avoids ever having to pay the tax charge. However, it risks missing out on money entitled if income stays higher for longer.

Implications of Avoiding Child Benefit

While avoiding the HICBC can prevent extra tax bills, it can impact National Insurance credits for parents who are not working. Not claiming child benefits means a parent may not accrue NI credits towards their state pension. Those who do claim but elect not to receive payments can still build up NI.

The best option depends on specific circumstances. Seeking tax planning advice can help higher earners identify the optimal approach regarding Child Benefits. Reducing or eliminating the High Income Child Benefit Tax Charge is often possible with the right strategy.