High Income Child Benefit Charge (HICBC)

Understanding the High Income Child Benefit Charge (HICBC)

The High Income Child Benefit Charge (HICBC) is a term that has gained importance in the tax landscape for families in the UK. It’s a mechanism designed to recover some or all of the Child Benefit payments from families where the income of one or both parents exceeds a certain threshold. Let’s delve into what HICBC entails, who it affects, and what considerations families need to keep in mind.

What is the HICBC?

The Child Benefit is a tax-free payment that’s designed to help parents and guardians with the costs of raising children. It’s available to anyone responsible for a child under the age of 16 (or under 20 if they stay in approved education or training). The HICBC, however, is a tax charge introduced in 2013 for families where at least one parent earns over a specified amount.

Who Does HICBC Affect?

HICBC affects families where one individual earns over £50,000 in a tax year and who either claims Child Benefit themselves or whose partner claims it. If both partners earn over £50,000, the one with the higher income is liable for the charge.

How Does HICBC Work?

If you’re affected by HICBC, the amount of Child Benefit you or your partner can receive starts to reduce once the higher earner’s income exceeds £50,000. For every £100 of income over £50,000, 1% of the Child Benefit is withdrawn. If the higher earner’s income exceeds £60,000, the entirety of the Child Benefit is usually lost through the charge.

Implications and Considerations

For families affected by HICBC, there are a few important considerations:

1. Opting Out: If you’re subject to HICBC and want to avoid the charge altogether, you can choose not to receive Child Benefit payments. This might be a sensible choice if the charge negates the benefit you’d receive.
2. Tax Return Obligations: If you or your partner’s income is over £50,000 and you continue to receive Child Benefit, you’ll need to declare this on a Self Assessment tax return. The charge is based on your income, not on how much Child Benefit you actually received.
3. Timing and Planning: Understanding the thresholds and the impact of the charge can help with financial planning. It’s important to consider the timing of income, especially for self-employed individuals or those with fluctuating earnings.
4. Impact on Other Benefits: Losing Child Benefit due to HICBC can have a knock-on effect on other benefits that depend on receipt of Child Benefit, such as Guardian’s Allowance.

Conclusion

The High-Income Child Benefit Charge is a tax provision aimed at adjusting benefits for families where higher earners receive Child Benefit. Understanding how HICBC works and its implications is crucial for families to make informed decisions about their finances. Whether opting out of Child Benefit or managing tax obligations, staying informed can help navigate this aspect of the tax system effectively.

You can find more information on any of these topics by visiting the HMRC website https://www.gov.uk/government/organisations/hm-revenue-customs

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