From 7th January child benefit will be means-tested and payments will be clawed back in households where one partner earns at least £50,000.
To recap what is Child Benefit?
Child benefit is a tax-free payment that is aimed at helping parents cope with the cost of bringing up children
Child benefit is a tax-free payment that is aimed at helping parents cope with the cost of bringing up children
- One parent can claim £20.30 a week for an eldest or only child and £13.40 a week for each of their other children
- The payments apply to all children aged under 16 and in some cases until they are 20 years old
- The system is administered by HM Revenue and Customs (HMRC) which pays out to nearly 7.9 million families, with 13.7 million children
So how will the High Income Child Benefit Charge work?
The charge will only apply to taxpayers whose income is more than £50,000 for the tax year. If both partners have income of more than £50,000 for the tax year, the charge will apply only to the partner with the highest income.
· A partnership comprises:
· a married couple living together;
· civil partners living together;
· a man and a woman who are not married to each other but who are living together; or
· a man living with a man or a woman living with a woman who are living together as if they were civil partners.
For taxpayers whose income is between £50,000 and £60,000, the amount of the charge will be one per cent of the amount of Child Benefit for every £100 of income that exceeds £50,000. A taxpayer whose income exceeds £60,000 will be liable to the charge on the full amount of Child Benefit and so effectively lose all the advantage of Child Benefit. For example, Child Benefit for two children is £1,752.
For a taxpayer whose income is £54,000, the charge will be £700.80 – i.e. £17.52 for every £100 earned above £50,000. For a taxpayer whose income is £62,000, the charge will be £1,752.
An individual who has income above £50,000 but is not entitled to Child Benefit themselves will only be liable to the charge for any period of the tax year during which they are living with a Child Benefit claimant whose own income is below £50,000.
Child Benefit itself is not being made liable to tax and the amount that can be claimed is unaffected by the new charge. It can continue to be paid in full to the claimant even if they or their partner have a liability to the new charge. Child Benefit claimants will be able to elect not to receive the Child Benefit to which they are entitled if they or their partner do not wish to pay the new charge. The claimant may subsequently decide to withdraw that election if they or their partner are no longer liable to pay the charge.
The measure of income that will be used will be the individual's “adjusted net income”. This is an existing method of determining an individual's income and is currently used to work out entitlement to personal allowances for someone aged 65 or over or who has income over £100,000.
The amount of the charge will be collected through self-assessment and PAYE.
The HMRC have launched a calculator to work out how you will be impacted by the changes. The link is https://www.gov.uk/child-benefit-tax-calculator
The information is intended to provide information only and reflects our understanding of legislation at the time of writing. Before making any decision, we suggest you take professional financial advice.
