High income benefit charge
Written by Ray Coman
From 7 January 2013, a tax charge will be introduced for people on high incomes. The charge applies if either:
- you receive child benefit, or
- your partner receives child benefit, or
- another person receives child benefit on behalf of a child who lives with you.
In this case a partner includes your spouse, civil partner or any other person who lives with you as if they were a spouse or civil partner, even if they are not the parent of the child on which benefit is received.
The tax charge applies to whichever partner has an income exceeding £50,000. If both incomes exceed £50,000 the tax charge would apply to the partner with the higher income. If neither partner has an income exceeding £50,000 then no charge would apply.
The charge is an amount equal to 1% of the child benefit for every £100 that income exceeds £50,000. In effect, the child benefit is tapered away until it reaches nil for individuals with an income of £60,000 or above. Individuals with total income over £60,000 who receive child benefit would suffer a tax charge equal to the benefit received.
It is possible to notify HMRC that you no longer wish to receive child benefit from 7 January 2013 and therefore no charge would apply.
The income tax charge is collected via self-assessment and there is no option for it to be collected via a tax code. Therefore if the income tax charge applies, a Tax return should be completed which includes the amount of the charge. Alternatively, a Tax Return would not be required if you have opted out of receiving child benefit, unless you already complete a tax return for another reason.
There may be an advantage to completing a child benefit claim, even if the tax charge cancels any benefit. The reason could be that you would receive a national insurance credit which would help protect entitlement to state pension.
For the purposes of the tax charge income includes most taxable income. However, there are deductions available for trading losses, pension contributions and gift aid payments. The tax benefits of reducing income between £50,000 and £60,000 are greater for people claiming child benefit.
We are specialists in assisting individuals with personal and family tax matters. Please contact us for an initial consultation which would be free at our offices.