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Previously, the HICBC came into play when an individual – or their partner – received child benefit and their annual income exceeded £50,000. The charge effectively reduced the amount of child benefit that could be claimed to nil once income hit £60,000.
With the rate of withdrawal halved, child benefit is not fully withdrawn until an individual’s income reaches £80,000.
The HICBC does not now apply until income exceeds £60,000.
The charge leads to a high effective marginal rate of tax, especially where child benefit is claimed for several children. Although still high, the reduced rate of withdrawal means the effective marginal rate of tax is now lower, so there is less penalty for getting a pay rise. Anyone who previously opted out of child benefit because their income was over £60,000 should opt back in by 5 July 2024 as claims can only be backdated for three months.
Because the HICBC is based on individual incomes, a working couple each with income of £59,000 retain 100% of their child benefit claim. However, with a sole working parent, child benefit is completely lost once household income is £80,000.
A move to a system based on household income will address this inequality, but could be controversial. Apart from completely breaching the concept of independent taxation, any revenue neutral adjustment will mean a considerable number of households losing out.
