The High Income Child Benefit Charge

The High Income Child Benefit Charge is the most misunderstood rule in the UK tax system, and the misunderstanding costs people real money — sometimes tens of thousands of pounds over a working life.

How it works

Child Benefit is paid to anyone responsible for a child. But if you or your partner have adjusted net income above £60,000, a tax charge claws some of it back. Above £80,000 the charge equals the full amount of Child Benefit received, so the net benefit is nil.

Between the two figures it's tapered — the charge takes a proportion, rising as income rises.

Three quirks worth knowing:

It's based on the higher earner's income, not household income. A couple each earning £58,000 keeps the full Child Benefit. A single parent earning £81,000 keeps none. That's £116,000 of household income against £81,000, and the first family does better. It's widely regarded as unfair and it remains the rule.

"Partner" is broad. Married, civil partnered, or living together as though you were. You can be liable for a charge on Child Benefit claimed by someone else in your household.

The higher earner pays the charge, even if the other person receives the benefit. Which means the person with the tax liability may not be the person with the money.

The mistake that costs the most

Many people above the threshold conclude the sensible thing is not to claim Child Benefit at all. Why receive money that will only be clawed back through a tax return?

Because Child Benefit carries National Insurance credits.

If you claim Child Benefit for a child under 12, the person who claims receives National Insurance credits for every week they claim. Those credits count as qualifying years towards the State Pension.

A parent who stays at home, or works part-time below the National Insurance threshold, and doesn't claim Child Benefit, builds no State Pension entitlement for those years. Over several children and several years that can be a substantial number of qualifying years lost — and each missing year permanently reduces State Pension for life.

There's a second consequence: claiming is what generates a National Insurance number for your child automatically at 16.

The right approach

Claim Child Benefit. Always. Then, if the charge would apply, tick the box on the claim form electing not to receive the payments.

You get the National Insurance credits and the child's NI number, and there's no charge to pay and no tax return needed for it, because you're not receiving any money.

If your circumstances change and your income falls, you can start receiving payments again.

This is one of the few places in the tax system where a form ticked correctly is worth thousands of pounds decades later, and where doing the intuitive thing — not claiming — is exactly wrong.

If you've already made this mistake, it's worth investigating. Claims can be backdated to a limited extent, and there have been arrangements allowing missing credits to be applied for retrospectively in certain circumstances. Worth checking your State Pension forecast for the gap first — see Your State Pension.

Reducing the charge

The charge is based on adjusted net income, the same measure as the Personal Allowance taper. The same levers work:

Pension contributions reduce adjusted net income pound for pound. Someone at £70,000 with two children who contributes enough to bring income to £60,000 keeps the full Child Benefit and gets tax relief on the contribution. The combined effect can produce an effective rate of relief well above their headline tax rate.

Salary sacrifice achieves the same thing at source — see Salary sacrifice.

Gift Aid donations also reduce adjusted net income.

The more children you have, the more Child Benefit is at stake and the more powerful this becomes. For a family with three children, the effective marginal rate in the charge band is high enough that pension contributions become extremely efficient.

The practicalities

If you receive Child Benefit and are liable for the charge, you have to register for Self Assessment and declare it. Failing to do so has caused a long tail of unexpected penalty demands, often to people who had no idea the rule applied to them.

Arrangements have been introduced to allow the charge to be collected through PAYE in some circumstances, avoiding the need for a return. Check the current position on gov.uk if this affects you.

This article is for general education only and isn't personal advice. Whether the charge applies depends on your and your partner's circumstances.

Related in this topic

The 60% tax trap

How income tax actually works

Your State Pension