High Income Child Benefit Charge
In the 2012 Budget the Government introduced a new charge which will apply to high earners where they or their partner claim Child Benefit. It is expected that up to 1.2 million families will be affected.
Taxpayers affected are those where they or their partner have an adjusted net income of over £50,000 and claim Child Benefit during the same tax year. The charge is payable by that partner whose income exceeds the threshold. Where both partners' net income is greater than £50,000, the charge is payable by the partner with the highest income.
For these purposes, partner means spouse, civil partner or person with whom they live.
The tax charge is calculated as being equal to 1% of the Child Benefit received for every £100 of adjusted net income over the £50,000 threshold. Therefore those taxpayers with an income of £60,000 or over will pay a charge exactly equal to the Child Benefit received.
For example, assume a taxpayer has a net income of £54,000 who, with their partner, claims Child Benefit of £1,752 in respect of the two children for which they are responsible. In this scenario an additional charge of £700 (40% * £1,752) would be liable by the taxpayer.
Adjusted net income is broadly total taxable income less relief for trading losses, pension contributions and gift aid contributions.
The charge will calculated by completing a self assessment tax return form. Taxpayers will have the option of having the charge collected through their taxcode.
The new charge will apply from 7 January 2013. This means that the charge will be based on any Child Benefit received from this date but relevant income will be calculated based on a full tax year.
If a taxpayer wishes to avoid paying the charge then they and their partner can elect not to receive Child Benefit. However, claims for new children should still be completed even though the benefit may not be received as this will help ensure National Insurance credits are still received which are important to protect entitl
Author: James Cornthwaite FCA CTA
A former pupil at St Aidan’s C of E High School, James attended Blackpool Sixth Form College and Lancaster University, graduating in 2004, gaining BSc. first class honours. He joined Moore and Smalley, Preston in 2005 and qualified as a...
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