A significant tax change is poised to impact tens of thousands more British families, pulling them into a financial 'trap' related to Child Benefit payments. New analysis reveals that the government's ongoing freeze on tax thresholds will result in 35,000 additional households being liable for the High Income Child Benefit Charge (HICBC) by the 2028-29 tax year.
The Growing Reach of the High Income Child Benefit Charge
According to data obtained through a Freedom of Information request, the number of families required to pay the HICBC is projected to climb steadily. The figures are expected to rise from 324,000 in the current year to 359,000 in 2028-29. This increase is a direct consequence of the Labour Party government's policy to freeze income tax thresholds, a measure that pushes more earners into higher tax brackets over time without actual pay rises keeping pace with inflation.
The charge applies when one partner in a household claiming Child Benefit has an 'adjusted net income' exceeding a set limit. For the tax year 2024-25 onwards, this threshold is £60,000. It's crucial to note that 'adjusted net income' includes total taxable income such as earnings, savings interest, and dividends, before personal allowances but excluding items like Gift Aid.
Expert Warnings and Policy Blind Spots
Shaun Moore, a tax and financial planning expert at wealth management firm Quilter, which submitted the FOI request, expressed serious concerns. "The data shows that each successive year more parents will be subject to clawbacks of child benefit that eat into household budgets at a time when costs of living remain high," he stated.
Moore highlighted a critical issue for policymakers: "It is also worrying that HMRC cannot say how many higher earners have children, because it means the Government lacks full visibility of who faces these financial cliff edges." He described the situation as policymakers "taking a shot in the dark on a key piece of family finances" as inflation-driven wage increases nominally push more families over the threshold.
How the Charge Works and Who is Responsible
The rules governing the HICBC are specific. The charge applies if:
- You or your partner receive Child Benefit.
- Either individual has an income over the £60,000 threshold.
- If both partners have income over the threshold, the person with the higher income is responsible for paying the full charge.
The definition of a 'partner' includes someone you're married to, in a civil partnership with, or living with as if you were, provided you are not permanently separated. The charge can even apply if the child living with you is not your own, provided you contribute at least an equal amount to their upkeep.
This looming increase underscores a significant pressure point for middle-income families, where modest wage growth intended to offset living costs could instead result in the loss of a valuable state benefit, creating a complex financial dilemma for an estimated 359,000 families by the end of the decade.
