Child Benefit tax charge: how to avoid losing out

The High Income Child Benefit Tax Charge (HICBC) applies when either parent's adjusted net income exceeds £60,000 (as of April 2024). For income between £60,000 and £80,000, you repay 1% of your Child Benefit for every £200 above the threshold — so at £70,000, you repay 50%; at £80,000, you repay 100%. 'Adjusted net income' is your gross income minus certain deductions — including pension contributions and gift aid donations. This creates a legitimate opportunity to reduce your adjusted net income below the threshold without actually reducing your salary. If you are employed and have no other reason to file a tax return, you can now ask HMRC to collect the charge through your tax code using its online service instead of registering for Self Assessment. Otherwise it is paid through your Self Assessment return.

Even if you expect to repay all the Child Benefit through the charge, it's almost always worth claiming. Claiming Child Benefit — even if you subsequently opt out of payments — protects your National Insurance record for the non-working partner (vital for State Pension qualification), registers your child for a National Insurance number automatically at age 16, and keeps you in the system for future entitlement reviews if your income drops. You can claim but opt out of actually receiving the payments, so there is no charge to pay while preserving NI credits. This is often the best approach for higher-earning families.

Adjusted net income is your taxable income after deducting personal pension contributions (not employer contributions, but employee ones are deducted too via salary sacrifice), Gift Aid donations, trading losses, and certain professional subscriptions. Increasing your pension contributions is the most powerful tool — every extra £1 contributed to a personal pension reduces your adjusted net income by £1. For example, if you earn £70,000, making £10,000 in pension contributions brings your adjusted net income to £60,000, avoiding any HICBC while also boosting your retirement pot (with tax relief added on top). Salary sacrifice schemes also reduce your taxable income directly — see our guide on salary sacrifice.

Currently, the HICBC is charged on the higher earner of the two parents, regardless of who receives the Child Benefit. If both parents earn under £60,000 individually but combined earn £120,000, neither faces the charge. A previous plan to move to a household-income basis was dropped at the Autumn Budget 2024. Income splitting strategies (e.g., transferring investments to a lower-earning partner) can legitimately reduce the higher earner's income. However, be aware that HMRC has strict rules on income splitting between spouses/civil partners — income from genuinely transferred assets is acceptable, but artificial schemes are not.