The Government has decided to withdraw child benefit from high-income households. But rather than cancelling the payment to high earners, HMRC will impose a new Child Benefit Tax to recoup some or all of the benefit.
The new tax charge will be introduced from the 7th January, 2013.
Who is affected by the changes to Child Benefit?
You will have to pay the High Income Child Benefit Charge if:
- You (or your partner) have an individual income of over £50,000 a year
- You receive Child Benefit or get financial help from someone who claims Child Benefit for a child that lives with you.
This sounds straightforward enough, but there are a few things to bear in mind. By ‘partner’, HMRC means any person you are married to, any person you are in a civil partnership with, or any person you are living with as if you are married to or in a civil partnership with.
Also, it does not matter whether the child that is living with you is not your child – you will still have to pay the tax.
If it’s still unclear, the HMRC has an online tool to help you figure out whether you will be affected.
How much will you be taxed?
The amount of tax you are due to pay will depend on two factors: the amount of Child Benefit you receive and the level of your income.
If your income is £60,000 or more, then you will have to pay back all of the Child Benefit you receive.
If your income is £50,000 or more, then you will have to pay back 1% of the benefit for every £100 you earn above the £50,000 base level.
So for example, if you earn £57,000 then you will have to pay 70% of the Child Benefit you receive back to HMRC.
What do you need to do?
If the changes will affect you, then you need to decide whether you want to stop receiving the benefit.
If you decide to keep receiving the benefit, you will now have to register for Self Assessment and file a tax return every year.
To stop receiving Child Benefit (and thus avoid paying the tax charge) you will need to notify the Child Benefit Office.
Here’s HMRC’s FAQ pdf document which may be helpful.
Please do not hesitate to contact us if you would like more information and advice on the Changes to Child Benefit on 020 8780 2349.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.