The Child Benefit High Income Tax Charge: How to Avoid It in 2025

Let me guess - you've got children, you're doing well in your career, and now HMRC wants a slice of your Child Benefit? I feel like this is one of those tax charges that catches so many agency owners and professionals completely off guard as we head into 2025.

Child Benefit High Income Tax Charge 2025 Rules

The threshold changes introduced in 2024 will continue through 2025, and it's important to understand how these impact your family finances. HMRC raised the threshold from £50,000 to £60,000 in April 2024, and this will remain in place for the 2025/26 tax year.

The taper rate was also halved, which means your Child Benefit gradually reduces until your income reaches £80,000, rather than the previous £60,000 limit. This represents good news if you're earning between £50,000 and £80,000, giving you more breathing room before the tax starts to bite.

The Basics You Need to Know for 2025

The High Income Child Benefit Charge (HICBC) is basically a tax that claws back Child Benefit when either you or your partner has an individual income over the threshold.

This tax is particularly frustrating because:

• It's based on individual income, not household income
• The higher earner pays the charge (even if they're not the one receiving the benefit)
• Many people don't realise they need to declare it on a self-assessment

The government previously considered changing to a household income basis, but this reform has been shelved, meaning the individual income basis will continue through 2025.

How Does This Work?

For the 2025/26 tax year, here's how the charge will work:

• Below £60,000: No charge, keep all your Child Benefit
• Between £60,000 and £80,000: Partial charge (1% of your Child Benefit for every £200 earned over £60,000)
• Above £80,000: 100% charge (you lose all your Child Benefit)

For example, if you earn £70,000 in 2025 and receive £1,500 in Child Benefit for your children, you would lose 50% of it through the tax charge. This means paying £750 back to HMRC through self-assessment.

What is "Adjusted Net Income"?

One of the most common issues I see with clients concerns understanding what counts as "adjusted net income" for this tax charge. This isn't just your salary - it includes:

• Your total salary
• Bonuses
• Dividends if you run a limited company
• Rental income
• Savings interest
• Less pension contributions and Gift Aid donations

This last part about deductions is crucial for tax planning - and I'll come back to it.

Your Options When Facing the Charge in 2025

When your income exceeds the threshold for the 2025 tax year, you have two main choices:

1. Keep receiving Child Benefit and pay the tax charge through self-assessment
2. Opt out of receiving the payments altogether

Here's the thing though - even if you opt out, you should still fill in the Child Benefit claim form but select "no payment." This protects your National Insurance credits (which count toward your State Pension) and ensures your child automatically gets their National Insurance number.

Strategies to Reduce or Avoid the Charge in 2025

Here are completely legitimate ways to reduce or eliminate this charge:

1. Increase Pension Contributions

This is probably the most effective strategy. Pension contributions reduce your adjusted net income, which can bring you below the threshold.

For example, if your salary is £65,000, making an additional £5,000 pension contribution would reduce your adjusted net income to £60,000, eliminating the charge completely.

The best part? You're not avoiding tax - you're converting what would be a tax charge into your retirement savings. Win-win.

2. Salary Sacrifice Schemes

Check if your employer offers salary sacrifice for things like:

• Pension contributions
• Childcare vouchers (if you're still on the old scheme)
• Cycle to work schemes
• Electric car schemes

These all reduce your adjusted net income.

3. Gift Aid Donations

Charitable donations made through Gift Aid also reduce your adjusted net income. If you're planning to donate anyway, this can help lower your income for HICBC purposes.

4. Restructure Income Between Spouses

If you're married or in a civil partnership, sometimes restructuring assets or income between you can help. For example, transferring investments to the lower-earning spouse.

5. Review Your Company Structure

For business owners, there may be ways to restructure how you take income from your business. This could involve changing the balance between salary and dividends, or potentially bringing your spouse into the business if appropriate.

Avoid This Costly Mistake in 2025

I've seen too many people simply stop claiming Child Benefit when their income rises above the threshold. This is a mistake for two reasons:

1. You miss out on National Insurance credits which count toward your State Pension (especially important if one parent has taken time off work for childcare)
2. Your child won't automatically receive their National Insurance number

Even if you opt out of payments, always complete the claim form.

The Bottom Line

The Child Benefit High Income Tax Charge feels unfair to many families, but with some smart financial planning, you can minimise its impact or avoid it altogether.

The key is understanding exactly how the charge works and being proactive about managing your adjusted net income.

If you're finding this all a bit overwhelming, it's definitely worth speaking to an accountant who specialises in personal tax planning. 

The strategies I've outlined can potentially save you thousands each year, money that could be better used for your family or your future.

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