In a significant policy shift, the Chancellor, Jeremy Hunt, has announced changes to the High-Income Child Benefit Charge (HICBC) in the Spring Budget, which will see nearly 500,000 families financially better off in the new tax year.

This adjustment comes as a response to criticisms over the fairness of the tax, which has affected many higher-earning parents, resulting in an effective marginal tax rate as high as 64 per cent.

Details of the change

The HICBC, introduced in 2013, required higher earners to repay some or all of their child benefits after one parent earned more than £50,000.

However, from April this year, this threshold will increase to £60,000 as part of a transition to a new system based on combined household income, which will be introduced in the next few years.

Previously, higher earners faced a reduction in child benefits through the HICBC on a sliding scale, with the charge being dubbed a “tax on children” by critics.

To help with this, the taper threshold will also increase so that child benefits will now only be completely phased out for individuals earning £80,000 or more – with those earning between £60,000 and £80,000 seeing a scaled reduction as they earn more.

Currently, child benefit stands at £24 a week for the eldest or only child and £15.90 weekly for each additional child, totalling £2,074.80 annually for a two-child family.

Any additional children do not receive additional child benefits. Alongside the changes to the earning threshold and taper rates, child benefit monthly payments will increase to £25.60 and £16.95 respectively from 6 April.

What this means for you

Starting April 2024, families could see an average increase in their disposable income by £1,260 due to these changes.

For families with two children, their benefit payments could surge to as much as £2,212 annually.

This adjustment stems from the Chancellor’s decision to increase the income threshold for the child benefit charge from £50,000 to £60,000, effectively exempting 170,000 families from the HICBC.

Why it matters

This overhaul comes after pressure from campaigners and a recognition of the increased financial strains on families.

With tax thresholds previously frozen and wages climbing due to inflation, more parents found themselves eligible for the charge, sparking a call for change.

The Chancellor’s response not only aims to correct an unfair tax penalty but also to ensure that child benefits more effectively reach families in need.

For contractors, freelancers and their families where one partner is in the higher earning bracket, this development means a potentially significant relief and additional child benefit payments in future.

This change is automatic and requires no action from you as it is calculated based on your tax return.

The adjustment to the child benefit charge is a welcomed reform, marking a step forward in fairer tax practices and support for working families across the UK.