High Income Child Benefit Charge – “a tax on children”
Since 2013, hundreds of thousands of parents have lost some or all their child benefit, currently worth £1,789 a year for a family with two children.
In a nutshell, those affected have a choice: carry on receiving child benefit but pay extra tax through the self-assessment system or give up the benefit and don’t pay.
The tax is 1% of the amount of child benefit for each £100 of income on a sliding scale between £50,000 and £60,000. For those earning more than £60,000 the charge is 100% – in effect, they receive no child benefit.
While this regime has been in place for a while, each year sees thousands of people confronting it for the first time – usually triggered when their earnings have gone above £50,000.
You may have to pay a tax charge, known as the ‘High Income Child Benefit Charge’, if you have an individual income over £50,000 and either:
- You or your partner get Child Benefit
- Someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep
It does not matter if the child living with you is not your own child.
Two parents earning up to £49,999 each are not subject to the tax charge.
You can choose not to get Child Benefit payments, but you should still fill in the Child Benefit claim form. This will help you get National Insurance credits which count towards your State Pension. Claiming Child Benefit also means your child will get their National Insurance number automatically shortly before they’re 16. They will not have to apply for one themselves.
Meanwhile thousands fall foul of the regime by not knowing it even exists. Recent press headlines include:
“Child benefit: father gets sent shock £6,000 tax demand “
“The taxman’s treatment of unmarried couples’ reeks of hypocrisy”
“Mum wins £5,000 back from HMRC after 8-month appeal over Child Benefit charges”
So, what can be done to minimise this charge, if anything?
The child benefit tax charge is based on your adjusted net income. This is your total taxable income, (i.e. basic salary plus benefits you get from your job, dividend income, rental income and so on) minus things such as private pension contributions and gift-aided donations to charity.
So, if you think you will be caught out, it might be worth making additional pension contributions to bring your income below the threshold.
If you think you should have registered for self-assessment because you are caught by the legislation, then don’t bury your head.
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