The high income child benefit charge was introduced on 7 January 2013 as a way to restrict child benefit to couples. The charge effectively claws back through the self-assessment tax return of the higher earning partner, some or all of the child benefit received in the year. Consequently, as an alternative to incurring the charge, HMRC allows individuals not to receive the benefit.
It is important to note that the tax charge does not just apply to married couples. If two individuals are living together as husband and wife, or civil partners, and both
(a) either of them receive child benefit and
(b) either has adjusted net income (ADI) of more than £50000 (this is income less the gross amount of any personal pensions and gift aid donations)
then the higher earner will be liable to the higher income child benefit charge.
In addition where:
Married couples separate, the charge will also continue to apply until such time as the separation becomes permanent; and
If a child is being cared for by someone other than the parents, for example a grandparent, on a long term basis, the carer may be liable to a tax charge.
Calculating the tax charge
The tax charge is 1% of the child benefit received for every £100 of ADI over £50000. As the charge only came in on 7 January 2013, there are 13 weeks in the tax year 2013/13 to which the charge will apply. This has effectively introduced several hundreds of thousands of tax payers to having to file tax returns for 2012/13. In the tax year 2013/14, unless you wish to pay any tax due with the submission of your tax return the high income child benefit charge will be collected via your PAYE tax code.
If your ADI exceeds £60000, the tax charge will effectively claw back all the child benefit.
Do remember that you don’t need to be the recipient of the child benefit to be the one that is taxed.
By David White a Partner in Charterhouse, based in Beaconsfield
