HMRC has confirmed that Child Benefit claimants or their partners earning over £60,000 may be subject to the High Income Child Benefit tax charge. The charge is tapered so that for those earning between £60,000 and £80,000, claiming Child Benefit may still be financially worthwhile.
How the Tapered Charge Works
The amount of Child Benefit you can receive is not affected; it can still be paid even if one partner must then pay the income tax charge. If your income is between £60,000 and £80,000, the charge is 1% of your Child Benefit for every £200 of income above £60,000. The charge will never exceed the amount of Child Benefit you receive.
If your income exceeds £80,000, the charge equals the full Child Benefit amount, meaning you are no better off for receiving it. Couples can have a combined income of up to £120,000 without being affected, as long as neither individual earns over £60,000. For example, two partners each earning £55,000 will not face the charge.
Calculating Adjusted Net Income
Any charge is based on your adjusted net income for Income Tax – your taxable income after allowable reliefs such as pension contributions or charitable donations.
Turn2Us, the charity, warned: "The charge is paid through a self-assessment tax return. It is your responsibility to make sure that you pay this tax even if you are not contacted by HMRC."
Opting Out of Payments
You can decide not to receive Child Benefit payments to avoid the charge, and you can change your mind at any time. Turn2Us added: "You will remain entitled to Child Benefit, even if you choose not to have it paid. This is in order to protect your entitlement to national insurance credits (Carer’s Credits), which can count towards your State Retirement Pension entitlement."
If you have a baby or become responsible for a child, you may decide not to receive Child Benefit to avoid the tax charge. However, you should still make a claim to protect your national insurance credits, stating on the form that you do not want to receive payment.
