Child Benefit rates are set to increase in April 2024, when the new tax year begins.
However, while the amount people get may rise, parents could be at risk of being taxed on the payment as their wages rise.
The High Income Child Benefit tax Charge (HICBC) was introduced in 2013 and affects people with an individual income of £50,000 or more in households claiming Child Benefit.
The charge increases gradually for people with incomes between £50,000 and £60,000, equal to one per cent of a family’s Child Benefit for every extra £100 of income over £50,000 each year.
The High Income Child Benefit tax Charge (HICBC) was introduced in 2013
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The tax charge will be equal to the individual’s total Child Benefit award where income exceeds £60,000.
Despite inflation and wages rising to keep up with the increased cost of living, the threshold for the High Income Child Benefit Charge hasn’t increased from £50,000 since it was first introduced.
It means basic rate taxpayers at the higher end of the 20 per cent tax band – which has been frozen at £12,571 to £50,270 until 2028 – now face paying the charge.
As wages increase, more parents are likely to be affected by the charge, something which is known as fiscal drag.
Amid the ongoing freeze to income tax thresholds, Alice Guy, head of pensions and savings at interactive investor explained: “If you’re a parent then fiscal drag is potentially even more painful, as you could stand to lose Child Benefit as your wages gradually rise with inflation.”
A Conservative Party MP recently spoke to GB News about fiscal drag, as he called for Chancellor Jeremy Hunt to scrap the six-year freeze which is dragging earners into the higher rate tax bracket.
Asked about the frozen HICBC threshold, Mr Smith, the MP for Buckingham, said: “I do think there does have to be a review of the system to ensure that those that need Child Benefit are able to access it.
“If thresholds and inflation have had an impact on that, the Chancellor needs to be straightforward about it and fix those thresholds because that will equally start to play into the increasing offer for parents of very small children, preschool children, as the government’s offer on funded childcare places comes in.
WATCH NOW: Greg Smith MP discusses Child Benefit tax charge
“We have to have a fair system that ensures that the support that we offer to families that need it is fair and equal.”
An HMT spokesperson said: “The Charge means that the government can support the majority of families while ensuring stable public finances.
“The Government has recently announced improvements, taking steps to allow employed individuals to pay HICBC through their tax code and parents to receive a National Insurance credit retrospectively.”
How much is Child Benefit?
The Child Benefit rate for an eldest or only child is currently £24 per week, but the proposed rate for 2024/25 is £25.60.
For any other children, the weekly rate is currently £15.90 per child, and it’s proposed this would rise to £16.95 per child next year.
