Child Benefit Tax Charge: How to Stay Below the Limit

The cost of living keeps rising, and it’s tougher than ever for families to manage. That’s why it’s so important for parents to claim all the benefits they’re entitled to. Child Benefit is a government program designed to help parents with the expenses of raising kids.

But here’s the catch: since January 2013, families, where one person earns over £60,000 (as of the 2024/25 tax year), may face the High Income Child Benefit Charge (HICBC). If you fall into this group, you could lose part—or all—of your Child Benefit through a tax charge.

At Crypto Taxation, we get how frustrating this can feel. In this article, we’ll break down how the tax charge works and, most importantly, how you can avoid it. Let’s make sure you’re not missing out on what you’re owed!

What Is Child Benefit?

If you’re raising a child in the UK, you might qualify for Child Benefit. Here’s how it works:

You can claim if your child is:

Under 16, or
Under 20 and in approved education or training.

The money is paid every four weeks, and there’s no limit to how many kids you can claim for. But only one parent can claim for each child.

Why claim Child Benefit?

You’ll get an allowance for each child.
You’ll earn National Insurance credits, which help build your State Pension.
Your child will automatically get a National Insurance number before they turn 16.

Even if you don’t want the payments (to avoid a tax charge), you should still apply so you can get these other benefits.

How much can you get?

£25.60 a week for your eldest or only child.
£16.95 a week for each additional child.

For example, if you earn £35,000 a year and have two kids, you’d get about £2,212.60 a year, or around £184 a month, with no tax charge.

It’s money that can help. Don’t miss out.

What is the Child Benefit Tax Charge?

Any parent (or their partner) with an individual income over £60,000 for the 2024/25 tax year is liable to pay a High Income Child Benefit Tax Charge. (Previously, the threshold was £50,000.)

Every £100 of income above the £60,000 threshold sees 1% of the total amount of Child Benefit reduced. This is calculated on the adjusted net income (ANI). For those earning over £70,000, the tax charge cancels out the Child Benefit entirely.

The charge applies to the highest earner in a household, even if they are not the one receiving the benefit. For example, if a couple both earn over £60,000, whoever has the higher income must pay the charge.

This has been controversial – with some referring to it as the Child Benefit tax trap. The person liable for the tax charge is the parent with the higher income. For example, for a couple both earning in excess of £60,000, whoever has the highest income would be responsible for paying the charge at the end of the tax year.

However, there are ways to reduce your taxable income and potentially avoid the charge altogether.

Strategies to Mitigate the Tax Charge

One way to avoid the Child Benefit tax charge is to tell HMRC you don’t want to receive Child Benefit payments. If you’re not getting the payments, you won’t have to pay the tax charge. Some parents also engage professional audit services to review their finances and ensure they’re correctly reporting income and maximising reliefs.

But even if you don’t want the money, it’s still a good idea to claim Child Benefit. Why? Because it gives you National Insurance credits, which count toward your State Pension. To get the full State Pension, you need 35 years of National Insurance contributions. At least 10 years are needed to qualify for any pension at all. So, claiming Child Benefit can help, even if you don’t take the payments.

Now, let’s talk about how to avoid the tax charge.

Pension Contributions

Paying into your pension is a smart way to lower your taxable income and avoid the Child Benefit tax charge. Here’s an example:

If your income is over £60,000, Child Benefit gets taxed heavily. A couple with two kids, for example, would have to pay back £1,106 if they don’t make pension contributions.

But let’s say that couple pays £10,000 into a pension during the year. After tax relief, £8,000 gets deducted from their income. This brings their taxable income down to £60,000. Now, they don’t have to pay the tax charge.

Instead of losing £1,106, they get to keep the full value of their Child Benefit, which is £2,212.60. Plus, as higher earners, they can claim even more tax relief through a self-assessment tax return.

By contributing to their pension, they’ve saved money and reduced their tax bill. It’s a win-win.

2. Salary sacrifice

Thinking about cutting down your Child Benefit tax charge? Salary sacrifice might be worth a look. It’s simple—swap part of your salary for perks like pension contributions or childcare vouchers. Sure, it’s not for everyone, but could it work for you? Curious? Dive into our guide and explore the details.

3. Charitable donations & Gift Aid

Charitable donations, like through Gift Aid, can reduce your taxable income. Sure, you don’t save tax yourself—but your charity gets 25% extra from HMRC. Not bad, right? It even helps with the Child Benefit charge. Just remember to include your donations on your tax return. Simple enough?

Adjusting Income to Stay Below the Threshold

Earning over £60,000? Here’s the deal with Child Benefit:

Keep getting it, but you’ll need to pay the tax charge.
Or, opt out to skip the charge.

Still, don’t skip claiming—it secures NI credits and your child’s future NI number. Small steps, big impact!

Impact of the Child Benefit Tax Charge on Families

Parents with higher incomes got some big news from the recent budget. The government is changing a tax rule that has been hard on many families.

It’s called the high income Child Benefit charge, and it affects parents who earn over a certain amount. The new changes mean almost 500,000 families will save an average of £1,260 a year. Even better, 170,000 families won’t have to pay this tax at all anymore.

Consulting with Financial Advisors

Not sure if HICBC affects you? Or just curious about the latest changes? Reach out using the form below—our experts are here to help. We’ll keep updating this page with any new developments, so stay tuned. Questions? We’ve got you covered. Let’s figure it out together.

FAQs

Are there penalties for not paying the High Income Child Benefit Charge on time?

If you don’t register for Self Assessment or forget to include Child Benefit on your tax return, you could get a penalty. It’s important to follow the rules. Mistakes can cost you. Keep it simple: register on time and report everything correctly.

Can I receive Child Benefit payments if I earn above the threshold but choose to pay the tax charge?

Yes, you can still get Child Benefit payments even if you earn more than the income limit. However, you’ll need to pay back some or all of it through a tax charge. It’s your choice. Some people still like to claim the payments because it helps with National Insurance credits, which count towards your State Pension. Just remember, if your income is over the threshold, you’ll have to account for the tax charge later.

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Jaden Boolkah

Hi, I'm Jaden Boolkah, a Senior Crypto Accountant with over seven years of experience in the crypto world. I started exploring cryptocurrencies early on, and my passion for numbers eventually led me to accountancy about five years ago. I love diving into the nuances of macroeconomics and global finances—it keeps me curious and continuously learning. My work is all about making taxes work for you, not against you, and I’m dedicated to handling your company’s finances in the most efficient way possible.