While a pay rise is generally worth celebrating, you should be mindful that the High‑Income Child Benefit Charge (HICBC) does not put a dampener on things.
How does HICBC work?
If you or your partner earns more than £60,000 a year while claiming Child Benefit, you may be subject to HICBC.
HMRC will begin reclaiming your Child Benefit using the HICBC once the threshold is crossed.
Who earns the £60,000 and who claims the Child Benefit does not matter, as the higher earner will always be charged by the HICBC.
How much Child Benefit will need to be paid back?
As your income increases, the amount of Child Benefit you need to pay back will also rise.
A one per cent clawback rate is applied to every £200 of adjusted net income above the threshold.
As an example, a person would need to pay back 15 per cent of their Child Benefit if they have an annual income of £63,000.
The full Child Benefit will need to be paid back once income reaches £80,000.
How is HICBC paid?
The process for paying HICBC became easier last summer when HMRC added the option for managing it through a PAYE tax code.
The previous methods of using a Self Assessment tax return or opting out of Child Benefit payments entirely remain an option if they are your preference.
If you file a Self Assessment tax return anyway, you will still need to report the HICBC on these returns.
Is opting out of Child Benefit worth it?
The most important thing to do if your income crosses the threshold is to review your position immediately rather than at the end of the tax year.
The decision will then be on you and your partner about whether you manage HICBC or forgo Child Benefit entirely.
It is worth keeping in mind that claiming Child Benefit does provide entitlement to the State Pension, so cancelling the claim without advice might not be the best approach, especially if the person receiving Child Benefit does not make regular National Insurance Contributions (NICs).
If your pay rise has made you subject to HICBC, speak to our team.
