Tens of thousands more families will have to pay back some or all of their child benefit by 2030, thanks to frozen tax thresholds.
An additional 54,000 families will pay what is known as the high-income child benefit charge (HICBC) in the next four years, as wages grow but the salary level at which parents start to lose child benefit remains frozen.
For a family with two children, child benefit is worth up to £2,212 per year, while if you have three children, it could be worth up to £3,094.
However, the Government claws back child benefit from households where the highest earner has an adjusted net income above £60,000.
They must repay child benefit at a rate of 1 per cent for every £200 of income over the threshold.
Once income reaches £80,000, households must repay all child benefit, meaning many families choose to opt out – though staying in the system can close gaps in a parent’s state pension record if they have taken time out of work to raise children.
Frozen thresholds: 54,000 more families will pay the high income child benefit charge by 2030
Until April 2024, full child benefit was only available when the highest earner earned under £50,000.
This means there are now more parents who can claim the full amount.
A Freedom of Information request submitted by NFU Mutual shows the number of families liable for HICBC will jump from 324,000 in the current tax year to 378,000 by 2030-31.
It means HM Revenue & Customs will rake in £486million by 2030, up from £373million in the current tax year ending April.
The Treasury will also receive an estimated £2.57billion in revenue over the next six years.
Frozen income tax thresholds mean that any increase in wages will drag more people into higher tax brackets and, therefore, a higher marginal rate.
The HICBC has come under fierce criticism for penalising higher-earning single parents.
A household that has two parents each earning £59,000 – a total of £118,000 – will receive child benefit in full, while a household with a sole parent earning £60,000 or more would see some or all of the benefit withdrawn.
Former Chancellor Jeremy Hunt planned to reform the charge and consult to move to a system based on a household, rather than individual income by 2026. However, Labour quietly shelved the plans when it came to power.
Instead, it has pledged to reduce the administrative burden by allowing affected families to repay the charge via PAYE from this summer, rather than completing a tax return.
Sean McCann, chartered financial planner at financial advice firm NFU Mutual, said: ‘You can become subject to the charge if you moved in with someone who is claiming child benefit, even if they’re not your children.
‘The good news is anything you’ve paid into your pension is knocked off your income before the charge is assessed. If it reduces your income below £60,000 you won’t need to pay the charge.’
SAVE MONEY, MAKE MONEY
4.4% cash Isa
4.4% cash Isa
Trading 212: 0.8% fixed 12-month bonus
£100 cashback
£100 cashback
Transfer or fund at least £10,000 with Prosper
.jpg)
4.49% cash Isa
4.49% cash Isa
Includes 12-month boost for new customers
£3,000 cashback
£3,000 cashback
1% cashback up to £3,000 when transferring
Sipp transfers
Sipp transfers
Get between £100 and £3,000 cashback
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence. Terms and conditions apply on all offers.
