Child Benefit: still a benefit to high earners?

In a word, yes. But only with attention to detail.

Issues with Child Benefit made news this year, and the Office of Tax Simplification recently recommended ways that Child Benefit rules could be made to work better for families across the board.

High Income Child Benefit Charge

For high earners, the key issue is High Income Child Benefit Charge (HICBC). This applies if you, or your partner, have more than £50,000 adjusted net income in the tax year and:

  • you or your partner receive Child Benefit or
  • someone else gets Child Benefit for a child living with you, if they contribute at least an equal amount towards the child's keep.

If both partners have income above this level, the charge applies to the one with the higher income. Adjusted net income means total taxable income before personal allowances, but after deductions such as Gift Aid payments.

The charge claws back 1% of the full Child Benefit award for every £100 of income between £50,000 and £60,000. Where income is more than £60,000, effectively all Child Benefit is lost. It is important to be aware that it's the taxpayer's responsibility to notify HMRC of liability to HICBC. HMRC does not automatically initiate action.

Tip

Appropriate strategies can help keep the income of each parent below the point at which HICBC begins to bite. Where both parents have income of £50,000, for example, it may be possible to retain full Child Benefit payment for the household; but if income of £100,000 is in one name, all Child Benefit is lost.

Unintended consequences

It's not just claiming Child Benefit that can create problems for higher earners. So can failing to claim.

Failure to claim means National Insurance credits, which count towards State Pension, may be lost. Claiming Child Benefit is also the trigger for the eventual issue of a National Insurance number (NINO) before a child turns 16.

Tip: maximise benefit for high earners

  • The claim isn't just about receiving payment.
  • Consider a Child Benefit claim, whatever your income level.
  • This gives National Insurance credits until the child is 12.
  • The child automatically receives their NINO.
  • You can then elect not to receive Child Benefit payments if you or your partner prefer not to pay the HICBC.

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