High Income Child Benefit Tax Charge - child waving

How to reduce or avoid high income child benefit tax charge

Written by Gemma Darcy

High income child benefit tax charge (HICBC) is nothing new, introduced in 2013, it made those earning over £50,000 liable for a tax charge. However, from 6 April 2024, this figure rises to £60,000. 

Child benefit is offered by the Government to an individual responsible for a child under the age 16, or between 16 and 20 in full-time ‘non-advanced’ education at school or college – so not a degree – or is starting an ‘approved’ training course. 

High Income Child Benefit Tax Charge  - students

There are separate rates payable for each child and no limit on the number of children who can qualify. However, there are incidents when an individual may become liable for HICBC at the end of each tax year.

Who pays the high income child benefit tax charge?

If your adjusted net income exceeds £60,000, this reduces your Child Benefit payment by 1% for every £200. If your income exceeds £80,000, the tax charge is equal to the amount of the Child Benefit payment. And, this is still the case if the child living with you is not your own.

What is adjusted net income?

Adjusted net income is the total income charged to income tax, for example, from employment, property, dividends or savings – less specified deductions. It also includes any taxable benefits you receive from your job, like a company car or medical insurance. If you and your partner’s* adjusted net income is over £60,000, the one with the higher income is responsible for paying the tax charge.

High income child benefit tax charge - small child making a heart shape with colourfully painted hands

How can you reduce or avoid the high-income child benefit tax charge?

Contribute to your pension scheme: One of the most tax efficient ways is by making contributions into your pension in order to reduce your Annual Net Income (ANI). Depending how much you earn and you pay into your pension, could mean you’re able to reduce or even avoid paying HICBC.

Donate through Payroll Giving: If this scheme is offered by your employer or pension provider, any donations you give will be taken before Income Tax is taken off. As a higher rate tax payer, you would need to claim the difference between the tax paid on the donation and the amount the charity received in return when you fill in your Self Assessment tax return.

Making Charitable Donations: If you pay enough tax on your income or capital gains, donations to Gift Aid will qualify as long as they’re not more than four times what you have paid in tax in that tax year (6 April to 5 April). You can then reduce the ‘adjusted net income’ figure and reclaim your child benefit. 

Opt out of receiving Child Benefit: Or you can of course opt out of receiving payments and not pay the tax charge. However, you must still complete a Child Benefit form to say you wish to do so. But a word of warning here. If one of you earns over £60,000, but the other is not working and decides to opt out of receiving payments this means they lose out. By not claiming Child Benefit, the non-working parent will no longer be eligible to earn National Insurance credits towards the 35 years of contributions required to receive a full State Pension.

Tax planning has a large part to play in your financial plan so do get in touch if you’d like to discuss how I can help with maximising your tax allowances.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and we are dependent on individual circumstances.

*Partner refers either to a person who you’re married to and not permanently separated from, in a civil partnership with, or living with as if you were.

Source: Gov.uk

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