The Low Incomes Tax Reform Group (LITRG) has called for the high income child benefit charge (HICBC) threshold to rise in order to avoid it “hitting basic-rate taxpayers for the first time in April”.
According to LITRG, the spending review in November 2020 confirmed that the government would increase the higher-rate threshold in line with the September 2020 CPI figure. Meaning the higher-rate threshold for 2021/22 will now be set at £50,270 – exceeding the £50,000 threshold at which the charge begins to apply.
LITRG has said basic-rate taxpayers will now be “liable to the charge for the first time from 6 April 2021. This means the policy will no longer meet its original intent to only target higher-rate taxpayers”.
Tom Henderson, technical officer for LITRG said: “When the high income child benefit charge was announced in 2010, the Government’s policy intent was that it would only affect higher-rate taxpayers from January 2013. For the 2012/13 tax year, the higher-rate threshold – the point at which an individual is liable to the higher rate of tax – was £42,475.
“Since then, the higher-rate threshold has risen broadly in line with inflation but the £50,000 threshold for the high income child benefit charge has remained static. The Government has so far resisted calls to up-rate the £50,000 threshold, but this is no longer tenable now the higher-rate threshold will overtake it from 6 April 2021.”
He added:” LITRG also calls for the point at which child benefit is fully clawed back to increase from £60,000 to £75,000. This is to address the fact that larger families can face higher effective marginal tax rates when they are liable to the charge. “