From 7 January 2013 child benefit will still be paid to parents who currently receive it, or who make new claims. However, where one or both of the parenting couple has net income over £50,000 a tax charge will apply equivalent to 1% of the child benefit received by the family. This will result in a tax charge equal to 100% of the child benefit when net income reaches £60,000 per year.
‘Net income’ for this purpose is income after the deduction of losses, pension contributions and gift aid payments, but before personal allowances, so there is some scope for reducing the taxpayer’s net income below the £50,000. The child benefit included in the calculation will be that paid from 7 January 2013 onwards.
The tax charge will apply to the taxpayer with the highest net income of the couple in 2012/13, regardless which of the couple claims the child benefit payments. The parenting couple for this purpose do not have to be married, they only have to be living together as though they were married or in a civil partnership, which is a definition taken from benefit law. So one person could be taxed on income received by another person. It is proposed that the child benefit tax charge will be collected through PAYE or self-assessment.
HMRC is writing to every taxpayer with income of £50,000 or more, irrespective of whether they have children or not, to explain the new rules.
The child benefit claimant will be given the option of declining to receive child benefit if they or their partner do not wish to pay the tax charge.
If you or your partner are affected by the High Income Child Benefit charge and have decided to stop Child Benefit payments, there’s an online form to make your request. It is important to know that only the person who’s entitled to Child Benefit can stop the payments.
First posted on 2nd April 2012. For further information contact our Chartered Tax Advisor, Penny Bowen, on +44 (0)1844 260111.