The Chancellor’s decision to freeze tax thresholds will leave thousands of families forced to pay High Income Child Benefit Charge, eroding the value of government support.
According to official HMRC forecasts, uncovered in a freedom of information request by Quilter, fiscal drag will force 35,000 more families into paying the charge, jumping from 324,000 in the 2025-26 tax season, to 359,000 by 2028-29.
This follows Rachel Reeves’ decision to extend the tax threshold freeze until 2031 in the Autumn Budget, in a bid to raise £11bn by the end of this parliament.
The decision has been coined a “stealth tax” as earnings are taxed more in real terms due to inflation, with the freeze also predicted to drag 920,000 more people into paying 40 per cent income tax by 2030.
Impacting working parents
The families expected to be affected are those in the tapering range of liability, meaning people in an income bracket between £60,000 and £80,000 who will repay a proportion of their Child Benefit rather than the full amount.
HMRC forecasts estimate 213,000 families will be subjected to the High Income Child Benefit Charge (HICBC) in the 2025-26 tax year, rising to 246,000 by April 2029.
Meanwhile, over 111,000 families will find themselves repaying their benefit in full.
Shaun Moore, tax and financial planning expert at Quilter, said: “Tens of thousands more families will be pulled into the High Income Child Benefit Charge over the coming years purely because frozen thresholds let inflation and nominal earnings shifts do the work of tax increases.
“ Families may not be better off in real terms, but more and more of them will see support withdrawn as a result.
“The data shows that each successive year more parents will be subject to clawbacks of Child Benefit that eat into household budgets at a time when costs of living remain high.”
No data on children
Despite the rising number of families set to be subjected to the charge, HMRC does not hold data on how many taxpayers earning over £100,000 have children, limiting policymakers’ ability to understand the impact of threshold freezes on families and their household finances.
Under current rules, access to free childcare hours are lost upon one household member earning over £100,000, regardless of what another member earns.
This causes many Brits who hover around the threshold to use salary sacrifice schemes, including increased pension contributions, to come back under the threshold and keep their free 30 hours.
However, from April 2029, a £2,000 tax-free cap per year will be introduced, meaning any further contributions will be subject to the standard national insurance rates of eight per cent on salaries under £50,270 and two per cent on any income above that.
Moore said: “It is also worrying that HMRC cannot say how many higher earners have children, because it means the Government lacks full visibility of who faces these financial cliff edges.
“As more families cross into higher income brackets in name alone, policymakers are effectively taking a shot in the dark on a key piece of family finances.”