The High Income Child Benefit Charge (HICBC) came into force on 7 January 2013 but, even after 11 years, it still causes confusion and concern for those impacted.
The tax charge applies when an individual or their partner receives Child Benefit and one of them has an income of over £50,000 a year.
The charge isn’t based on the household income but on each individual’s income. Therefore, you could have two people earning £40,000 and there be no impact, but if one earns £60,000 and one earns £20,000, the household would be subject to the charge.
If one person’s income is above £60,000, the HICBC works by clawing back a sum equivalent to all the Child Benefit paid. For individuals with an adjusted net income of between £50,000 and £60,000, it works on a taper basis.
While some avoid complex tax reporting by not claiming Child Benefit, this can cause them to lose out on NI credits towards the state pension
The difficulty is that those affected have various options on what to do, and the consequences of those options are not obvious.
The options are to:
- Not claim Child Benefit at all
- Claim Child Benefit but not receive payment of it
- Receive Child Benefit but pay some or all of it back through the HICBC
Registering a claim for Child Benefit, but then opting not to receive it, is the only way to avoid paying the charge and its associated administration, while also preserving National Insurance (NI) entitlements.
It is not always appreciated Child Benefit has important links with the wider NI system by providing the claimant with NI credits until the child is 12. This can help fill gaps in their NI records for the state pension if they are not working.
You could have two people earning £40,000 and there be no impact, but if one earns £60,000 and one earns £20,000, the household would be subject to the charge
As a result, while some people avoid the complexities of tax reporting by not claiming Child Benefit, this can cause them to lose out on NI credits towards the state pension.
As with many other thresholds, whether clients are impacted or not will depend on their adjusted net income – broadly, total income reduced by certain tax reliefs, such as gifts to charity or pension contributions.
For example, by making pension contributions of £8,000 net, £10,000 gross, someone earning £60,000 would be removed from the HICBC while also building up their pension entitlement and reducing the tax on their income.
This would mean an extra £1,946 could be reclaimed as higher rate relief. In addition, for a household with two children, Child Benefit is worth over £2,000 per year, which is not insignificant.
NI credits can be transferred between parents of children under the age of 12 and this can be back dated for one year
It is also worth noting that where the working parent of a couple has registered to receive Child Benefit rather than their non-working partner, the non-working parent does not receive any NI credits and may therefore lose entitlement to future state pension.
NI credits can be transferred between parents of children under the age of 12 and this can be back dated for one year.
Alongside this, Specified Adult Childcare credits can be used to pass NI on to someone caring for the child under 12 if not needed for those in the household. This was introduced in 2011 and can be backdated to that date. Those caring for the child can include:
- Mother or father who does not live with the child (non-resident parent)
- Grandparent, great-grandparent or great-great-grandparent
- Brother or sister, including:
- Half-brother or half-sister
- Step-brother or step-sister
- Adopted brother or adopted sister
- Aunt or uncle
In some cases where Child Benefit wasn’t claimed, NI credits have been lost for parents or carers. Currently, you can only backdate Child Benefit claims for three months.
For a household with two children, Child Benefit is worth over £2,000 per year
However, the government has recently published an update, which says individuals will be able to apply for NI credits for parents and carers from April 2026, where they have not claimed Child Benefit.
The eligibility for this will be closely based on Child Benefit eligibility criteria, with transitional arrangements to allow them to be backdated to 2013. The credit will add qualifying years of NI where eligible, which will support future state pension eligibility.
Claire Trott is divisional director, retirement and holistic planning, at St James’s Place
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