HM Revenue & Customs (HMRC) has confirmed a £200 tax charge rule that affects UK households claiming Child Benefit. If you or your partner earn more than £60,000 a year, you will be required to pay back a portion of your Child Benefit. For those earning £80,000 or more annually, the entire amount must be repaid.
How the £200 rule works
The repayment is calculated at a rate of 1% of your Child Benefit for every £200 you earn above the £60,000 threshold. HMRC provides a clear example: "Your adjusted net income is £67,600 in tax year 2024 to 2025. This is £7,600 over the £60,000 threshold. As 7,600 divided by 200 is 38, you’ll pay back 38% of your Child Benefit."
This new rule applies to the 2024 to 2025 tax year and represents a significant shift from the previous system. In the 2023 to 2024 tax year, the threshold was set at £50,000, with a repayment rate of 1% for every £100 earned above that level. For instance, HMRC notes: "Your adjusted net income is £56,700 for tax year 2023 to 2024. This is £6,700 over the £50,000 threshold. As 6,700 divided by 100 is 67, you’ll pay back 67% of your Child Benefit."
Who is responsible for the tax charge?
If both you and your partner have adjusted net incomes above the threshold, the individual with the higher income is responsible for paying the tax charge. HMRC defines a partner as someone you are married to, in a civil partnership with, or living with as if you were married, provided you are not permanently separated.
This means that in households where one partner earns significantly more than the other, the higher earner will face the financial liability. The charge is designed to gradually reduce Child Benefit payments for higher-income families, ensuring that support is targeted at those who need it most.
Opting out to avoid the charge
There is an option to opt out of receiving Child Benefit payments entirely. If you choose this route, you will not receive the payment and will not be subject to the tax charge. However, you will still be registered for Child Benefit, which allows you to access other benefits.
Specifically, opting out means you continue to receive National Insurance credits, which count towards your State Pension. Additionally, your child will automatically receive a National Insurance number without having to apply shortly before they turn 16 years old. This can be a valuable option for families who wish to avoid the administrative burden of the tax charge while still securing these long-term benefits.
Impact on UK households
The new £200 rule is expected to affect a significant number of families across the UK. With the threshold now set at £60,000, more households may find themselves subject to the charge compared to the previous £50,000 limit. However, the higher threshold also means that families earning between £50,000 and £60,000 are no longer affected, providing some relief.
For those earning between £60,000 and £80,000, the gradual repayment structure means that the amount repaid increases with income. At £80,000, the full repayment kicks in, which could be a substantial financial hit for families relying on Child Benefit to support their children.
HMRC emphasises that the calculation is based on adjusted net income, which includes earnings before tax but after certain deductions, such as pension contributions. This means that individuals can potentially reduce their adjusted net income by making additional pension contributions, thereby lowering their Child Benefit tax charge.
What you need to do now
If you are a Child Benefit recipient and your income or your partner's income exceeds £60,000, you should review your tax situation. You may need to complete a self-assessment tax return to report the charge, or you can choose to opt out of payments if you prefer not to pay the tax.
HMRC advises that individuals who are affected should keep accurate records of their income and any deductions to ensure they calculate the correct repayment amount. Failure to report the charge could result in penalties, so it is important to stay informed and act accordingly.
For many families, the change may prompt a reassessment of their finances, particularly if they are close to the threshold. Seeking advice from a tax professional or using HMRC's online tools can help clarify your obligations and ensure you are not overpaying or underpaying.
