Tax return filing is now in full swing and its incredibly important that your tax return is accurate to avoid any issues or surprise tax bills from HMRC in the future.
One common issue we run into that clients are unaware of is the High-Income Child Benefit Charge.
This charge applies to individuals or couples that are in receipt of Child benefit payments and have individual income of over £50,000.
The purpose of Child benefit is to help those with children with the extra costs of growing a family, however public pressure and government savings led to a limit on who could rightfully claim such a benefit.
The charge effectively is to re-coup the child benefits payments already made to those with income over the limit.
Now keep in mind this is not a cliff edge charge it is applied on a sliding scale on income from £50,000 – £60,000. Therefore, those earning £50,001 will not lose their complete entitlement to child benefit.
For each £100 of ‘adjusted net income’ (details below) above the threshold the individual must repay 1% of the child benefit they have received.
This amount will be added to the tax liability on a tax return.
Am I Affected?
This effects families with just ‘one’ individual over the threshold. So, if that individual’s partner receives child benefit then they would be susceptible to the charge.
A joint income which exceeds the threshold but would not do so individually are not affected by the charge.
It does not matter if the child living with you is not your own child.
If both partners are above the £50,000 threshold then the individual with the highest adjusted net income will pay the tax charge.
- There is an option to ‘opt out’ of receiving child benefit to avoid this charge at the end of each tax, however it is recommended to still complete the claim form to continue to receive National Insurance Credits for you or a partner. Please also note that if income falls below the limit then you must re apply for child benefit.
- There is the obvious option to continue to receive child benefit and pay the tax charge at the end of each tax year.
- An option to reduce ‘adjusted net income’ to below the threshold is possible by making gift aid donations among other allowable deductions. To calculate your Adjusted Net income please use the calculator below. You will also find further detail regarding the charge on the HMRC website.
As stated the child benefit payments must be declared on your self-assessment tax return, individuals who solely receive income via employment may need to register for this.
Jackie and Lee live together and have one child.
Jackie’s taxable income is £22,000.
Lee’s taxable income is £56,000. He also made £2,300 gross contribution into his pension.
During the tax year 2018/19 they received child benefit of £3,000.
Jackie will not pay High income Child Benefit Charge.
Lee’s adjusted net income is £53,700. (£56,000 – £2,300)
This is therefore £3,700 above the threshold.
Lee will have to repay 37% of the child benefit they have received via the charge. (£3,700 / 100 = 37)
Total High-Income Child Benefit Charge £1,110 (£3,000 x 37%)
This will be added to his tax liability for the year.
If you require any further information or would like to discuss how this may effect you please get in touch on firstname.lastname@example.org .
This blog is for information purposes only and D.H. Tuck & Co Limited cannot be liable for any decisions made based on the information published. Processes were correct as at the time of posting. Always seek professional advice when dealing with tax affairs.