Quilter calls for changes to child benefit charge

Leading wealth management business Quilter is calling on the government to amend the threshold in which the high income child benefit (HICB) charge comes into effect, removing basic rate taxpayers from it during the cost of living crisis.

Child benefit is not means tested and if one earner in a family makes more than £50,000 a year, they must pay back 1 per cent of the Child Benefit they receive for every £100 over the threshold.

However, a basic rate taxpayer can earn £50,270 before falling into the higher rate band. This means basic rate taxpayers are currently in scope for a tax charge aimed at higher earners.

According to a Freedom of Information request from Quilter earlier this year, nearly 630,000 people were identified as paying the high-income child benefit charge. The latest data also shows the government took in £416m via the charge in the 2019/20 tax year, while 624,000 opted out of getting child benefit in 2020, up 57 per cent compared to 2013, the year the charge came into effect.

With wages rising the number of people impacted is set to grow as the High Income Child Benefit threshold has not been moved since it was introduced.

With the population in the midst of a cost-of-living crisis, Quilter is calling on the government to increase the threshold for the HICB charge to provide some respite during these challenging times.

Ian Browne, pensions expert at Quilter, said: “It is somewhat perverse that basic rate taxpayers are being caught out by a charge that is not designed for them. The government has failed to increase the HICB charge in line with income tax thresholds and as such they are now benefitting from a quirk in the system that is potentially catching a lot of people out.

“Given the cost-of-living crisis we are witnessing just now, and the fact it is hitting lower and middle income households, the government could provide some quick relief by simply raising the HICB threshold to £52,271 - the rate at which someone becomes a higher rate taxpayer.

“The UK tax system is already complicated at the best of times. Failing to have the HICB charge aligned with income tax bands just makes things even more complex and will catch a lot of people unaware. ”