The High-Income Child Benefit Charge is a contentious issue.
As many parents earning a so-called ‘high income’ living in more expensive parts of the country will tell you, they don’t feel like they are on a high income.
Then there is the fact that a couple who both earn just below the repayment threshold can avoid the charge, while a single parent who earns over the threshold would have to pay it. This means a two parent household with quite a nice income can get away without facing a child benefit charge while a single parent household earning significantly less may have to pay.
Bonkers.
Whatever we think about it, though, the law is the law. The benefits system is set up the way it is set up. We can’t change it, we can only understand how to operate within it.
So with that said, lets explain how the High-Income Child Benefit Charge works.
What is it?
I’m going to assume everyone knows what child benefit is: when the government gives parents benefit payments to help them pay for the cost of having children. It stops when the child hits 18 years old.
The high income charge is a way for the Government to snatch back that benefit from parents they deem to be well off enough to live without it. So they give with one hand but take with the other, creating lots of annoying and time consuming paperwork in the middle.
The specifics of the high income charge change over time. For example, the earning threshold (what counts as a ‘high income’) changed from £50,000 in the 2023/24 tax year, to £60,000 in the 2024/25 tax year. The government could make adjustments to exactly how the benefit charge works if they wanted, too.
However, the purpose of the charge is always the same – to stop people claiming it who don’t really need it.
Current Rules and Thresholds
As of the 2024/25 tax year, the high income benefit charge kicks in as follows:
- If one parent earns over the £60,000 threshold per year
- 1% of the benefit is repayable for every £200 earned over the threshold
That’s 1% of the benefit, not 1% of every £200.
The charge is applied to the highest earning parent in the household, regardless of which parent is claiming the benefit.
This means that two parents in the same house earning £120,000 between them would not trigger the charge. However, a single parent earning £60,200 would lose 1% of their benefit.
As an example, someone earning £65,000 would be £5,000 over the threshold. We need to divide that £5,000 by £200 to find the percentage of the benefit they would have to pay back.
- 5,000 ÷ 200 = 25
So someone on £65,000 would lose 25% of their child benefit in repayment charges. Child benefit is worth £1,354.60 a year for your first child, and and additional £897 for each additional child. So with two children, earning £5,000 over the threshold would mean losing £562.90 worth of child benefit.
This works out at full repayment if someone earns £80,000. So a single parent household earning £80k or more gets zero child benefit, and a two parent household earning £120k gets the full amount.
Just read that again and let it sink in.
It’s Paid Back via Self Assessment
The most irritating thing about the way this is set up, is that the parent earning the most money has to pay the charge.
To do it, they have to set themselves up on the government website and complete a self assessment each year. This is what self-employed people have to do in order to pay their taxes.
You are filing a tax return.
It’s not that complicated once you have been through it a few times, but for anyone unfamiliar with tax (perhaps someone who has always been employed) it can be very intimidating.
It also takes time, which as parents, let’s face it, we don’t have in abundance.
The charge will be paid back in taxes, so if you are employed it should be calculated as part of your pay packet each month. If you are self employed it will be added to your tax bill at the end of each financial year.
Opting Out
Thankfully, it is possible to opt out of child benefit.
I say thankfully, because for some people it just isn’t worth the hassle. A two parent household with one parent earning £30k and the other earning £75k is going to lose 75% of their benefit anyway, so for the sake a few hundred pounds each year they may decide to opt out and avoid the hassle of filling in a tax return.
Of course, this would suit the government just fine.
That said, it is still a good idea to register for child benefit, even if you opt out of receiving it straight away. This is because it automatically qualifies your child for a National Insurance number hen they hit 16 years old. Otherwise they have to apply for one themselves and it’s a pain.
Equally as important, registering qualifies the claimant for weekly National Insurance Credits, which are important for your state pension. You currently need 35 qualifying years to get the full state pension.
In a situation where one parent earns over the threshold but the other doesn’t work, or only earns a small amount, the non-earning parent will not be paying National Insurance contributions. Registering for child benefit in the non-earning or low-earning parent’s name gets them NI credits each year.
It’s so convoluted.
Even though the non or low-earning parent registers for child benefit payments, it’s the higher earning parent that is responsible for paying any high income child benefits charges. Then, if you decide to opt out to avoid an administrative nightmare for little or no financial reward, you still need to register so the non or low-earning parent can earn National Insurance credits.
Welcome to the British benefits system, ladies and gentlemen!
