The high income child benefit charge (HICBC) was introduced to claw back child benefit paid to higher earning families, it was not supposed to impact basic rate taxpayers. The income threshold for the highest earner in the family was crudely set at £50,000, with the charge withdrawing child benefit at the rate of 1% for every £100 of income above that threshold.
That income threshold hasn’t been changed since 2013. From 6 April 2021 the higher rate tax band starts at £50,270 (including the personal allowance of £12,570). In 2021/22 a basic rate taxpayer could have some of their family’s child benefit clawed back if their taxable income, before deduction of allowances, is £50,100 or more. Income must exceed £50,099 to trigger the minimum HICBC of 1% of child benefit received.
Where you have total income around £50,000, and the family receives child benefit, we would encourage you to make small gift aid donations, or pay personal pension contributions in 2021/22 to extend the basic rate band.
Also let us know which parent/ partner made the child benefit claim, as this can be important for class 3 national insurance credits, which help build up entitlement to the state pension. Where the earning parent made the child benefit claim, the non-earning parent who is providing full time childcare, will not receive the national insurance credits, which are automatically given if the child is aged under 12.
However, it is possible to transfer class 3 NI credits to a family member who has been involved in caring for the child or children. The parent or person with the main responsibility for the child must agree to allow the transfer of what would otherwise have been their NI credits. For each tax year NIC credits are transferred, could boost the state pension of the recipient by £260 a year.
Written by the Tax Advice Network