Avoid High Income Child Benefit Charge (HICBC)
The High Income Child Benefit Charge (HICBC) is a tax charge that applies to individuals with a taxable income above a certain threshold if they or their partner claim Child Benefit. To avoid the HICBC in the UK, you can take the following steps:
Reduce your income
The HICBC is based on your income, so reducing your income can help you avoid the charge.
For example, your employer may offer salary sacrifice which will reduce your overall gross income in return for something like an employer pension payment. Not only does this save you income tax, it will also save you in national insurance (NI) payments. If your income or your partners income is close- to £50,000 for example £55,000, a salary sacrifice that will take your income back to £50,000 or below will mean that you will keep the child benefit.
Opt out of claiming Child Benefit
If you or your partner is claiming Child Benefit and your income is above the threshold, you can opt out of claiming the benefit to avoid the charge.
The charge is equal to 1% of the Child Benefit received for each £100 of income above the threshold. This means that if your income is £60,000, you would be subject to a charge equal to 60% of the Child Benefit received.
It’s important to note that the threshold is the same for both partners, even if only one of them is claiming Child Benefit. Therefore, if the combined income of both partners is above the threshold, the HICBC will apply.
It’s also worth noting that the threshold is subject to change, so it’s a good idea to check the current threshold before taking any action.
Review your benefits
If you are claiming other benefits such as working tax credit, it may be worth reviewing these benefits to ensure that you are not also subject to the HICBC. It’s important to note that if you opt out of receiving Child Benefit it will affect your National Insurance record and may affect your entitlement to certain state benefits in the future.
Make a pension contribution
If you are a higher tax earner, by making a pension contribution to a registered pension could well be a good idea. It has an effect of raising your basic rate band. For example if you are earning £60,000 gross annually, if you make a pension contribution in the tax year of £8,000 net, this will extend your basic rate band to £60,000. As a result you not only save paying any tax at 40% but you will also remove the HICBC
Charitable gift aid payments
Making charitable gift aid payments has the same effect to your basic rate band as the above pension payments. By increasing the basic rate band you end up paying more tax at lower rates wilst also potentially avoiding the HICBC.
Seek professional tax advice
Seek professional tax advice: If you are unsure about how to reduce your taxable income or how the HICBC applies to your situation, it may be worth seeking professional tax advice. A tax advisor can help you understand the different tax reliefs and allowances that are available and help you plan your finances to minimize the impact of the HICBC.
At Finanche we advise hundreds of clients on how to best maximise their tax savings. Contact us at finance@finanche.co.uk and one of our accountants will be in touch with you.