‘Simplifying the tax affairs of parents unfairly affected by the HICBC’

Financial Planners


The government recently announced its intention to simplify the process for customers who become liable to the high income child benefit charge by clawing back the tax via people’s tax codes, once again bringing the challenges this charge has brought over the years to the fore. 

The HICBC has been an area of contention since it was first introduced in January 2013, which saw child benefit withdrawn gradually for families where at least one parent earns more than £50,000 a year. If one person earns more than £60,000, child benefit is stopped entirely.

The charge is equal to 1 per cent of child benefit received for every £100 of income that is more than £50,000 each year, and currently those faced with the HICBC must submit a self-assessment tax return each year.

However, the government’s recent announcement moves to take the onus away from higher earners having to remember to pay back part or all of their child benefit and complete a tax return, instead clawing back the tax charge via people’s tax codes.

This is a welcome change as we should see fewer people inadvertently fail to pay the charge, and it will also help to simplify the tax affairs of those affected.

While this change is a positive, albeit there are complexities still to be addressed, the government has a way to go in terms of making it fair. Basic rate taxpayers are intentionally impacted by this perverse charge, and single income households — often hard-working single parents — are unfairly penalised.

In addition, not only does the HICBC unfairly impact basic rate taxpayers, but had the threshold moved in line with inflation since its introduction in 2013, then it would currently sit at £65,000.

However, the current HICBC looks as though it is here to stay for at least the time being, and it presents an opportunity for financial planners to offer real value to their clients through careful, tax-efficient planning and a keen awareness of the rules.

Mitigate the charge through tax efficient planning

A couple each earning £49,999 would have no reduction in their child benefit, but a single parent earning more than £50,000 will start to lose part of the payment. While this is unfair and we would hope to see a rule change or at the very least a change in threshold, clients will need to be prepared for the current rules and some may need to make adjustments to their plans to ensure they are as tax efficient as possible.

Not only does the HICBC unfairly impact basic rate taxpayers, but had the threshold moved in line with inflation since its introduction in 2013, then it would currently sit at £65,000



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