Following the Chancellor's initial plans in 2010 for the removal of child benefit for higher rate tax payers, the 2012 Budget statement confirmed that, with effect from 7 January 2013, child benefit will be clawed back, partially or fully, where one of the parties in the family has income for the year which exceeds £50,000. If you are currently receiving child benefit, may become entitled to it in the future, or someone else is claiming child benefit in respect of a child living with you, you should consider the following to see how the change may affect you.
Does this apply to you?
If you are receiving child benefit and your income, or partner's income, exceeds £50,000 then a clawback charge will apply. Also, a charge applies where you or your partner has an income exceeding £50,000 if you have a child living with you for whom child benefit is claimed by someone else, if neither the recipient's nor their partner's income exceeds this amount.
In either case, it is the partner with the greater annual income who is liable to the charge.
How much will the charge be and how is it administered?
If your income is between £50,000 and £60,000 in a year, your charge will amount to 1% for every £100 above £50,000. Once your income exceeds the upper limit of £60,000, then your charge will equal the amount of child benefit received. With the sliding scale of claw back applying within the £50,000 to £60,000 band, consideration should be given by those with such income levels to the tax efficiency of their finances.
The income amount is for the full tax year, however each week of child benefit entitlement throughout the tax year is considered separately. Therefore, changes in personal circumstance should be noted and collated at the end of the year.
The current child benefit rates per week (as of April 2012) are as follows.
- Eldest/only child - £20.30
- Other children - £13.40
In a lot of cases the charge will be collected through self-assessment returns. However, PAYE regulations have been extended to enable the charge to be collected through PAYE, unless the taxpayer objects.
Relevant elections
Where a charge is expected to arise it is possible for the recipient to make a revocable election for child benefit not to be paid. This is different from not making a claim for child benefit, which is important as weekly National Insurance Class 3 contribution credits will continue to be given to the qualifying claimant for a child under 12.
For those households with someone whose income is around or over £60,000, making the election will avoid a near or full 100% charge and possibly the need to be brought within the self-assessment regime. However there is a practical point to consider. The person subject to the charge is not necessarily the recipient of the 'tax-free' income so there may need to be an associated discussion in the redistribution of the family finances.
The election can be made by making a telephone call or sending an email as per the details provided in the correspondence issued by HMRC, or completing a form online.
Key terms
Income: the income you will be assessed on is your 'adjusted net income'. This is broadly your net income (taxable income after deductions) less grossed up Gift Aid donations and pension contributions, with deductions for payments to trade unions and police organisations added back.
Partner: your partner is your partner in marriage or a civil partner, in addition to someone you are living with as either as your husband, wife or civil partner.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
