High Income Child Benefit Charge – When is a family considered to have a high income?

High Income Child Benefit Charge – When is a family considered to have a high income?

High Income Child Benefit Charge – When is a family considered to have a ‘high income’?

The High Income Child Benefit Charge (HICBC) is not new - in fact, it was introduced way back in 2013. However, the implications are slightly different for the current 2021/22 tax year compared to all years previously as it now seems that ‘high income’ has multiple meanings.

History of the Charge

The HICBC was introduced to require families to repay their child benefit where one party earned above £50,000 – a threshold determined by the government as a ‘high income’.

The charge is applied on the highest earner in the household and requires 1% of the benefit claimed to be repaid for every £100 earned above the £50,000 threshold. Where earnings are in excess of £60,000, 100% of the child benefit is repayable through the charge.

Earnings include employment income, taxable benefits, self-employed income, bank interest and any other taxable income that may be received, and is taken before the personal allowance is received.

The charge is usually repaid by completing a self-assessment tax return annually which is not normally required where someone is wholly employed.

How does this apply to the 2021/22 tax year?

There have always been concerns as to how the £50,000 threshold was determine, as a couple both earning £49,000 and therefore with a household income of £98,000 would not be liable to the charge, but a single parent earning £51,000 would be.

Further concerns have now arisen, as the purpose of the charge was always to charge families with a ‘high income’. However, for the 2021/22 tax year, the higher tax rate band (which we would assume is also an indicator of a higher income) has increased to £50,270.

We are therefore in the position where, families still only liable to the basic rate of tax, are liable to a high earners charge which seems to be opposite to the intention behind the charge.

As advisers we are left wondering whether the lack of increase in the HICBC threshold in line with the higher rate tax band was an oversight during an unprecedented year and whether the government plans to clarify what constitutes a high earning family in due course.

If you believe you may be required to repay child benefit as part of the HICBC or have any other queries on the above, please get in touch.