High Income Child Benefit Tax Charge (HICBC).

Why is this tax charge such a problem for a large amount of hard-working families?

The main problems are:

The treatment of single-earner and two-earner households
The operation of the £50,000 threshold

Mothers At Home Matter seeks to illustrate the difficulties that this hugely unfair family tax causes, alongside proposals for change.

(Tax and the Family, HICBC Briefing Paper; Dan Neidle, tax policy.org.uk)

Background.

In October 2010, Chancellor George Osborne proposed capping Child Benefit on higher incomes and announced the HICBC in his 2012 Budget. It came into effect in January 2013.
The HICBC starts to claw back Child Benefit from families when the higher earner has an income in excess of £50,000 and withdraws it completely at £60,000.
The charge is collected through the income tax self-assessment scheme and individuals who are liable to the charge are required to file an annual tax return.
It was intended to apply to the top 15% of the population. However, even in 2013, a single parent with two children and a single earner couple with two children on £50,000, while being in the better-off half of the population, would not have been in that top 15%.
The HICBC threshold is frozen at £50,000 and, since 2013, has now drawn many more families into the charge.
Some families caught in the High Income Child Benefit Charge are in the poorer 60% of the population including households officially in poverty and some who are entitled to Universal Credit while some of the richest families continue to receive it.
Mothers at home are not aware that by not claiming their Child Benefit (because of the tax charge) they lose their contribution to their State pension.

A New Tax Trap for Higher Earners.

Take a family with three children, living in London. The father is a Head of Department at a secondary school earning £50k salary. The mother cares for their children at home.

He has been offered a promotion as Deputy Head at another school a bit further away. He will have extra responsibility, his hours will be longer, and he will have to travel further but he will be rewarded with an increase to his wage of an extra £10k. In practice, however, he will find that he brings home only £2,900 of that increase. If he is on Universal Credit he will only bring home £1400.

For every extra £1, earned he loses 71p in tax, NI and loss of child benefit. He keeps only a third of the extra value he is adding for the school.

Should his wife return to work instead she can earn the full £10k without paying tax, and they keep their child benefit. They will be significantly better off.

This chart shows disposable income of the same family with three children living in Greater London at different income points:

*NB: Families who rent have greater access to Universal Credit; Single-Income Families (SIF) lose all Child Benefit at £60k compared to Dual-Income Families (DIF).*
*HICBC Briefing Papers*

Case Studies.

More Case Studies here

Case Study 1

I am in the military and due to numerous house moves as a result of postings, my wife's career has been limited. After 5 years, 4 moves, and 2 children, as a married couple we decided to lay some roots and buy our own home in Salisbury. As a couple, we wanted to invest in our family and children as much as possible. We wanted to live together and be around for each other. The military is now providing wrap-around childcare to support people like us to get back to having two incomes. Whilst this seems at first glance to be a great offer, it reinforces the issue of paying other people to raise our children. Every month we float in and out of debt as our disposable income is so low. From the outside, my wider family always questions why we struggle financially as I earn reasonably well (60K+), we have even questioned it ourselves. As I look deeper it becomes clear the tax we pay as a single earning household, (where child benefit no longer brings benefit) takes a huge toll. What we perceive to be a respectable and beneficial societal choice to have a parent at home to raise our own children has and continues to cost us greatly.

Case Study 2

Before becoming a parent I knew that I wanted to care for my child myself full time at home. Making that a reality has not been easy. My husband and I had to move to another county where property prices were lower and buy the cheapest property we could get that had a mortgage that was affordable on one salary. That is no mean feat in the current housing market. We bought our property in 2017. I was working as a florist after that, a job which pays minimum wage. My husband was earning the national average. When our son was born in 2021 we couldn't afford a second vehicle, so I spent a whole year only able to go out and about locally on foot.

In 2022 my husband got a new job with a higher salary and the bonus of a company car. Now I could finally go out and about with my son during the week. However, we were penalised as the company car pushes him into the next tax bracket and despite me earning nothing, we will have some of our child allowance taken away. Other couples both earning £49k are able to keep all of their child allowance. How is this fair? Nearly double the household income and receiving help. It feels like every effort you make to improve your financial situation, the government wants to knock you down as a family where one parent is choosing to stay home to care for their child.

More Case Studies here

Treating the family as a unit should be the first principle of family taxation.

Individual income is not a measure of how well off a family is. Net household income is a better measure.

Proposed Changes.

These are the proposals put forward by Tax and the Family and MAHM regarding the High Income Child Benefit Charge.

A new clause on the single earner/two earner issue:

High Income Child Benefit Charge

(1) In Section 681 of the Income Tax (Earnings and Pensions) Act 2003 (High income child benefit charge) in Section 681C after subsection (2) insert

(2A) In any year in which P does not have a partner or any partner P has does not have an income exceeding the personal allowance, P’s adjusted net income shall be halved.

(2) The amendment made by this section shall come into effect for the tax year 2024/25 and subsequent tax years.

A new clause on the threshold and marginal rate providing also for indexation:

High Income Child Benefit Charge

(1) In Section 681B of the Income Tax (Earnings and Pensions) Act 2003 (High income child benefit charge) in subsection (1)(a) delete ‘£50,000’ and insert ‘£70,000’.

(2) In Section 681C of that Act in the formula the figure L shall be £70,000 and the figure X shall be £200.

(3) If in any tax year the consumer price index for the September before that year is higher than it was for the previous September, the figure in subsection (1)(a) of Section 681B and the figures L and X in the formula in Section 681C shall be increased by the same percentage increase as the percentage increase in that index, if need be rounding the figures up to the nearest £100, £100 and £1 respectively.

(4) The amendments made by subsections (1) and (2) above shall come into effect for the tax year 2024/25 and subsequent tax years and the amendment made by subsection (3) above shall come into effect for the tax year 2025/26 and subsequent tax years.

'Mothers At Home Matter' and 'Tax and the Family' at the House of Lords campaigning for fairer taxation — MAHM campaigning with Tax & the Family at House of Lords

We need targeted tax cuts for families with children:

Abolish the Child Benefit Higher Rate Tax charge

An end to the high marginal tax rates that punish work
Remove the conditionality clauses forcing mothers of preschoolers to work 30 hours a week or lose their benefits

What can I do?

Contacting your MP is easy, and the most straight-forward way for busy mums to contact your representative is with a letter. You can find your MP’s contact details via the link below.

You could even follow up with a phone call, book an appointment to meet your MP, or turn up at your MP’s surgery to press home the message!

Find your current MP to protest the difficulties caused by the Child Benefit Charge.
Template Letter
Using your own words and describing how the tax penalty affects you and your family will help make your letter stand out.
Which social media channels are you on? Like and share Mothers At Home Matter’s posts, tag your MP if possible. See a post about this tax penalty? Why not comment and tag MAHM to help raise awareness?