Thousands more families will face higher taxes by 2028 as higher wages and frozen thresholds mean they will reach the child benefit threshold, figures shared exclusively with This is Money reveal.
Former Chancellor Jeremy Hunt raised the threshold at which the Government starts to claw back child benefit from £50,000 to £60,000, last year.
He said that the change to the high income child benefit charge (HICBC) would mean 170,000 households fewer families would have to pay the higher marginal tax rate.
However, new figures reveal frozen income tax thresholds and increasing wages will actually see more families affected.
An additional 50,000 families will pay the HICBC by the 2028-29 tax year due to rising incomes, according to a freedom of information request by NFU Mutual.
The Government claws back child benefit from households where the highest earner has an income above £60,000, and withdraws it completely when they earn over £80,000.
Child benefit charge: More families will pay a higher marginal tax rate, according to new figures
Frozen income tax thresholds mean that any increase in wages will drag more people into paying higher tax, and also have to pay HICBC.
The FOI shows that 376,000 families will pay HICBC tax by 2028-29, up from 325,000 in the last tax year.
The total amount it raises will increase from £268million in 2024-25 to £384million within four years.
While more families are set to be affected in the coming years, figures revealed with This Is Money last week showed that fewer households are currently having to pay the charge.
In the 2023/24 tax year, 75 penalties for ‘Failure to Notify’ were issued, down from 7,007 the year before. The total value of the penalties fell from £4.5million to £45,443.
The collapse in penalties suggests the threshold change has made a material difference and growing awareness may have prompted some parents to salary sacrifice into a pension to avoid the charge.
However, the frozen tax thresholds will soon mean that more and more people are caught in the child benefit tax trap as they will earn between £60,000 and £80,000.
If the highest earner in the household has an adjusted net income of more than £60,000, they have to start repaying child benefit at a rate of 1 per cent for every £200 of income over £60,000.
Once their adjusted net income reaches £80,000 they must repay all child benefit received and at this stage many families simply opt out of receiving it.
Sean McCann, chartered financial planner at NFU Mutual said: ‘Many are still unaware of the need to inform HMRC once their income exceeds £60,000 and pay any child benefit tax charge due.
‘There have been numerous cases where significant arrears have built up over several years, resulting in unexpected five figure tax bills.
‘The onus is on the individual with the highest income in the household to pay any child benefit tax due, this can cause issues with couples who don’t normally share details of their earnings with each other.’
Since its introduction a decade ago, the HICBC has faced criticism for placing an extra burden on working parents, particularly single parents.
A household with two parents each earning £59,000 – a total of £118,000 – will receive child benefit in full, while a household with a sole parent earning £60,000 would see some or all of the benefit withdrawn.
Hunt had pledged to significantly reform the charge and consult to move to a system based on a household, rather than individual income by 2026.
However, the Government quietly shelved the plans and will no longer proceed with the HICBC reforms.
Instead, it has pledged to reduce the administrative burden by allowing affected families to repay the charge via PAYE from this summer, rather than completing a tax return.
A Treasury spokesman said: ‘It is right that we target child benefit at the families who need it most to ensure the sustainability of our public finances and protect our vital public services.
‘We have taken the decisions to repair our public finances which has help us to get NHS waiting lists down and roll out free breakfast clubs through our Plan for Change.’
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