Escaping the HICBC: How to protect your Child Benefit

Escaping the HICBC: How to protect your Child Benefit

The High Income Child Benefit Charge, usually shortened to HICBC, can be an unpleasant surprise for families where one parent or partner earns over the income threshold.

Child Benefit can be valuable, especially for families with more than one child, but once adjusted net income reaches £60,000 or more, some of that benefit may be clawed back through the tax system. Once adjusted net income reaches £80,000, the charge can equal the full amount of Child Benefit received.

The important point is that the charge is based on the income of the higher earner, not the household as a whole. That can create some unfair-looking results. A household where both parents earn £60,000 may keep all of their Child Benefit, while a household where one parent earns £80,000 and the other does not work may lose it all.

What is adjusted net income?

The HICBC is based on adjusted net income. Broadly, this means taxable income before personal allowances, less certain deductions such as pension contributions and Gift Aid donations.

This matters because it means there may be planning opportunities. The figure that matters is not always the headline salary or income figure. Pension contributions, charitable giving and other deductions can affect whether the charge applies and how much is due.

Three ways to reduce the charge

There are several ways families may be able to reduce or eliminate the HICBC.

The first is income planning between partners. Where appropriate, it may be possible to review how income is shared between spouses or civil partners, particularly in family companies or businesses where both partners are involved.

The second is pension contributions. Because pension contributions reduce adjusted net income, they can be an effective way to bring income back below the HICBC threshold. This can reduce the tax charge while also increasing retirement savings.

The third is Gift Aid donations. Donations made under Gift Aid can also reduce adjusted net income, which may reduce the HICBC while supporting charities.

Do not forget the National Insurance credit

Even where the full Child Benefit is clawed back, it can still be important to register for Child Benefit. This is because the claim can help protect National Insurance credits, which may count towards State Pension entitlement.

In some cases, families choose to register for Child Benefit but opt out of receiving the payments. This can preserve the National Insurance position without creating a later repayment issue.

The key message

If your income is close to, or above, the HICBC threshold, do not assume the charge is unavoidable. A little planning before the end of the tax year can make a meaningful difference.

At williams lester accountants, we can help you understand your adjusted net income, review your options and plan ahead so that you do not lose more Child Benefit than necessary.

Need help reviewing your position? Get in touch and we’ll talk you through the options.