Conservatives pledge to raise high income child benefit threshold – how much could you save?

High-earning families could be able to keep more of their child benefit payments under a new Conservative government, Chancellor Jeremy Hunt has revealed.

Unveiling the latest sweetener to woo voters ahead of the general election on 4 July, Hunt said the Conservative Party would raise the high income child benefit charge (HIBC) threshold to £120,000, helping around 700,000 families hold on to more of the payments.

It comes after Hunt already raised the threshold from £50,000 to £60,000 during his Spring Budget. The Chancellor also said the system would move to an assessment based on household, rather than individual, income.

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“Raising the next generation is the most important job any of us can do so it’s right that, as part of our clear plan to bring taxes down, we are reducing the burden on working families,” Hunt said.

The Conservatives claim this could save the average family £1,500 earners from keeping more of the payments and paying less or no tax on them. But there are already questions around the cost of moving to a household assessment system, or whether the HIBC should just be scrapped.

What is the high income child benefit charge?

Under the current system, child benefit starts to get withdrawn if one parent earns more than £60,000 a year. The parent has to repay the benefit at a rate of 1% of the amount for every £100 they earn above the threshold.

The threshold was increased in April 2024 from £50,000. The top of the taper is also now £80,000, which is the point where all the benefit is repaid.

The policy has attracted criticism as it focuses on one higher earning parent. This means one spouse could earn £65,000 and the other £30,000, and this would mean losing some of the child benefit payments. But another couple earning just under £60,000 each wouldn’t be hit.

This is why Hunt has also committed to moving to a system based on household income. “Unfairness has been baked into the current system which allows two-parent households with combined earnings of up to a penny under £120,000 to keep their full entitlement, whilst others lose the benefit entirely because one parent tops £80,000,” said Danni Hewson, head of financial analysis at AJ Bell.

How much could families save from child benefit threshold changes?

The savings will depend on how much each parent earns and, of course, if the Conservatives are re-elected. So far, it is unclear what the Labour Party would do about the charge.

According to calculations by Quilter, a couple with two children where one person earns £80,000 and another earns £20,000 would be able to keep all £2,212.60 of their child benefit when they previously would have kept none.

Similarly, one parent earning £70,000 while the other earns roughly the average salary in the UK of £35,000 will be more than £1,106.30 better off and receive all the payments.

“The Tories’ announcement that they will peg the high income charge to household income will be music to many parents' ears,” said Shaun Moore, tax and financial planning expert at Quilter.

“However, this is not a new problem, and it has taken years for the penny to drop in government that the current rules create a perverse environment where a high earning single parent could lose their full child benefit entitlement, despite having a much lower household income than two parents earning just below the lower threshold.”

There is uncertainty over the administrative issues of moving to a household income assessment though. It is unclear how long this would take to implement by HMRC, which is already struggling with issues such as running its own self-assessment helpline.

“The administrative practicalities of moving to household based assessment is going to be challenging because our tax system - by which child benefit withdrawal is administered - is based on individual income,” said Tom Waters, an associate director at the Institute for Fiscal Studies.

“Indeed, this may well be why child benefit has been withdrawn in the rather odd way hitherto. In any case, we already have a means-tested benefit for families with children that is based on household income - universal credit. It's not clear what the point is of having a second one, means-tested in a different way."