Chancellor Jeremy Hunt used the final minutes of his Budget speech to pull a cute, cuddly rabbit out of his hat: the much-hated high income child benefit charge will be overhauled, and more families will be able to keep their child benefit payments.
Hunt called the tax charge “confusing and unfair”, and said it was finally time to change it.
Currently, child benefit - worth up to £1,248 a year - begins to be withdrawn when one parent earns more than £50,000 a year.
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But the chancellor said in his Spring Budget that the threshold will rise to £60,000 from April. The government estimates this will take 170,000 families out of paying the tax, meaning they can keep their full amount of child benefit.
Hunt also announced a consultation on basing the charge on a household’s income, rather than the higher-earning parent’s income.
We explain how the high income child benefit charge works, and how the reforms will benefit families.
What is the high income child benefit charge?
The tax charge kicks in when a parent earns £50,000 or more, reducing the amount of child benefit paid, and removing the payment entirely when the parent earns more than £60,000.
It means that a family where one parent earns £60,000 and the other earns £5,000 (a total of £65,000) does not get to keep any of their child benefit, but a family where both parents earn £49,000 each (a total of £98,000) can keep all of the payment.
The high income child benefit charge was introduced in 2013. It has been widely criticised for being unfair to households with one high-earning parent, and for being based on one parent’s salary rather than the whole household income.
The threshold has always been set at £50,000, which has also attracted criticism for not being increased in more than a decade, despite soaring childcare costs and high inflation.
Parents re-pay the benefit at a rate of 1% of the benefit amount for every £100 they earn over the £50,000 threshold. It means if they earn £55,000, they lose 50% of the benefit.
Families hit by the charge can either choose to stop receiving child benefit payments, or to pay part or all of the child benefit back through the higher earner’s self-assessment tax return.
What has the chancellor announced?
Jeremy Hunt admitted that the child benefit tax charge needed to be overhauled, saying in his Budget speech: “Today I set out plans to end that unfairness.”
He said that by April 2026, the plan is to move the charge to a system of household income, rather than based on individual parents.
However, he warned that it would need “significant reform to the tax system”, and therefore would not take effect for two years.
In the meantime, the chancellor said the threshold to start paying the charge would be raised from £50,000 to £60,000 from 6 April, meaning parents who earn less than £60,000 would be able to keep all of their child benefit.
The top of the taper at which the benefit is withdrawn completely will go up from £60,000 to £80,000.
Laura Suter, director of personal finance at the investment platform AJ Bell, said the decision to finally raise the threshold for child benefit was “a big boost to higher-rate taxpayer parents”.
She commented: “Someone earning £60,000 a year who currently gets no child benefit thanks to the high-income charge will now get the full child benefit each year. For a parent of two children that represents a total of £2,212.60 a year from April.”
According to the government, nearly half a million families will gain an average of £1,260 in 2024-25 as a result.
The changes will cost the Treasury £3.12 billion over the next five years.
How much child benefit will I get?
The rate of child benefit will increase next month, to £25.60 a week for an eldest or only child, and £16.95 for other children.
According to AJ Bell, a parent of one child on £60,000 who gets no child benefit currently will get £1,331.20 a year from April, while a parent of two children will get £2,212.60 a year from April.
Suter said: “The child benefit system has been ripe for reform for years. So many families have hit the high income charge, and as a result the number of families getting child benefit payments has dropped to its lowest level since records began, with the continual freeze on the threshold hitting more and more parents.”
| Salary | Child benefit for one child | Child benefit for two children | Child benefit for three children |
|---|---|---|---|
| £60,000 | £1,331.20 | £2,212.60 | £3,094.00 |
| £65,000 | £998.40 | £1,659.45 | £2,320.50 |
| £70,000 | £665.60 | £1,106.30 | £1,547.00 |
| £75,000 | £332.80 | £553.15 | £773.50 |
| £80,000 | £0.00 | £0.00 | £0.00 |
Source: AJ Bell
Myron Jobson, senior personal finance analyst at the investment platform Interactive investor, said the child benefit announcement was the “plumpest” rabbit to emerge from the chancellor’s red box.
He commented: “The fact the threshold for the high income child benefit charge hasn’t risen in line with earnings since it was introduced in 2013 has been a source of contention among parents. The tax cliff edge will become less severe for parents, who faced a higher marginal rate of tax as their income grew.”
Victor Trokoudes, founder and CEO of smart money app Plum, also welcomed the announcement, saying it would particularly help single parents, and that the changes were “especially critical when so many other essential childcare costs have increased”.
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