Earlier this year the Government announced the introduction of a ‘High Income child benefit charge’, which will apply to those whose individual income exceeds £50,000 a year. Where income exceeds £60,000 there will be a corresponding income tax charge equal to the value of the child benefit claimed through the year. Where income is between £50,000 and £60,000, there will be an income tax charge to claw back some of the child benefit claimed.
The charge will come into effect from 7th January 2013 and will apply to individuals whose income exceeds £50,000 a year if they or their partner receive child benefit. If both partners’ income exceeds £50,000, the charge will apply only to the partner with the highest income.
Rather than paying the charge, taxpayers may elect not to receive child benefit. However, there was some concern that individuals would then find it difficult to claim the benefit where they had made such an election. HMRC have now announced that the election may be revoked within two years of the relevant tax year so that parents who opt out of claiming child benefit in order to escape a child benefit tax charge can claim child benefit if their income subsequently falls.
The charge will be collected through self-assessment and PAYE. HMRC will shortly be writing to taxpayers with income above £50,000 and those affected will need to either:
(a) elect to stop getting child benefit from 7 January 2013, and avoid the new charge, or
(b) keep getting child benefit after this date and declare the payments on their self-assessment tax returns.
Please bear in mind that receiving child benefit allows the lower earning parent to build NIC credits, which may be important if they want to receive a state pension.
Although an election to not receive child benefit may avoid a tax charge for the higher earning parent, the lower earning parent will be out of pocket. Only the lower earning parent receiving child benefit can elect not to receive the benefit.
If you wish to discuss how this may affect you, please contact us.