The Unfairness of the High-Income Child Benefit Charge

Derek Blair Partner

HICBC is the means-tested clawback of child benefit if a taxpayer earns more than £50,000 with all of it clawed back once income exceeds £60,000.

This applies if either member of a couple earns more than £50,000.

One major unfairness is that it doesn’t apply if both members of a couple each earn up to £50,000, or £100,000 between them – it only applies when one of them earns over £50,000, and so this charge has a particular impact on one parent families.

The additional marginal tax rate this imposes depends on the number of children that child benefit is claimed for (at 2023/24 rates):

 1 child = £1,248 per year = 12.48% addition to your marginal tax rate.
 2 children = £2,075 a year = 20.75% addition to your marginal tax rate.
 3 children = £2,901 a year = 29.01% addition to your marginal tax rate.

So for a graduate junior/middle manager with 3 children earning £50k and being offered overtime or a potential bonus of up to £10k, their marginal tax rate would currently (in January 2024) be:

PAYE                      40%
Employee NI       2%
HICBC                    29%
Student loan       9%

Total marginal rate = 80%

That’s before worrying about any additional childcare costs if earning the overtime or bonus requires more paid-for childcare.

This patently isn’t fair, particularly when compared to universal benefits like state pension which isn’t means tested at all.

Just as importantly, it is a disincentive for some people to develop their careers and earnings potential, and on a macro economic level is a drag on UK plc’s productivity.

The solution? Increase the £60k upper threshold to £100k to reduce the steepness of the marginal rate.

This would reduce the impact on marginal rates quoted above by 4/5ths to:

 1 child = £1,248 per year = 2.50% addition to your marginal tax rate.
 2 children = £2,075 a year = 4.15% addition to your marginal tax rate.
 3 children = £2,901 a year = 5.80% addition to your marginal tax rate.

(This was written in January 2024, fingers crossed he does the right thing and abolishes it…. fingers crossed.)

Update March 7th 2024….

I’m delighted that the Chancellor took note of advice from many quarters, including the ICAEW, and announced some changes to the HICBC regime in his budget on 6 March 2024 as follows:

• The threshold for the charge will be increased from £50,000 to £60,000 from 6 April 2024.
• The charge will now be tapered over the range £60,000 to £80,000, halving the marginal rate of tax impact.
• HMRC will explore how the charge could be assessed on a household basis, potentially dealing with the unfairness aspects of the original clawback mechanism.

This means that some people who have either never claimed, or stopped claiming child benefit to avoid having to pay it back as the HICBC, should consider reapplying, especially in situations where one spouse/partner does not have any other means of obtaining an NI credit for a particular tax year –  claiming child benefit is one way of obtaining that credit (which contributes to entitlement to State Pension and other benefits) without having to pay voluntary NI contributions.