UK: Briefing Note - Child Benefit

Last Updated: 16 October 2012
Article by Smith & Williamson

Income tax charge for those on higher incomes

In the October 2010 Spending Review the Chancellor announced the decision to remove child benefit from families with a higher-rate taxpayer. The concept was reconfirmed in the Budget 2012 statement but with some changes: the trigger point raised from the higher-rate threshold (2012/13 £42,475) to £50,000, a graduated withdrawal for those with incomes between £50,000 and £60,000 and the claw back being by way of a charge on the person with the higher income.

The legislation has effect for the tax year 2012/13 onwards but for 2012/13 the charge only applies to child benefit entitlements for the weeks from 7 January 2013 onwards.

General description of the measure

The new charge applies to taxpayers whose income exceeds £50,000 in a tax year and who are entitled to receipt of child benefit and to taxpayers whose income exceeds £50,000 and whose partner is entitled to the receipt of child benefit. In the event that both partners have an income that exceeds £50,000, the charge will apply only to the partner with the highest income.

There is an extension to cover situations where the child benefit is received in respect of a child living with someone else. In such circumstances, where neither the recipient nor their partner is liable for charge then the person with whom the child is living, and their partner, are considered as if entitled to the child benefit.

It should be noted that child benefit remains non-taxable in the hands of the recipient. They, or their, partner are subject to a charge calculated by reference to the weekly entitlement to child benefit.

Meaning of partner

In this context, someone is a 'partner' of someone if they are a married couple or civil partners (not separated under a court order nor separated in circumstances in which the separation is likely to be permanent), a man and a woman who are not married to each other but who are living together as husband and wife, or a man living with a man or a woman living with a woman who are living together as if they were civil partners.

Meaning of income

'Adjusted net income' is broadly the amount of an individual's net income (total of taxable income less specified allowable deductions, losses, gross pension contributions etc) less grossed Gift Aid donations and net of tax pension contributions, but with any deductions made for payments to trade unions or police organisations added back.

The amount of the charge

For taxpayers with income between £50,000 and £60,000, the amount of the charge will be 1% of the child benefit received for every £100 of income over £50,000. For those with income above £60,000, the amount of the charge will equal the amount of child benefit received.

The income amount is for the full tax year however each week of child benefit entitlement throughout the tax year is considered separately. This means that changes in personal circumstances during the year (7 January 2013 for 2012/13) need to be noted and collated at the end of each tax year.

For reference the current rates of child benefit are as follows:

Administration and collection of the charge

The charge will in a number of cases be collected through the self-assessment return process. However the PAYE regulations have been extended to enable the charge to be collected through PAYE unless the taxpayer objects. HM Revenue & Customs (HMRC) is therefore likely to seek to do this in most cases, including for those taxpayers issued with an annual return. A big problem with this is that HMRC will have no means of telling, with any certainty, who will be liable to the charge.

Election not to receive child benefit

Where the adjusted net income of the person liable to the charge is £60,000 the child benefit coming in is being returned to the Exchequer as an income charge. Where it is the same person, or where a couple agree so as to save the associated hassle, it is possible to make a revocable election for payment of child benefit not to be paid if high income child benefit charge would be triggered. Note that this is different from not making a claim for child benefit entitlement.

The principal difference is that National Insurance Class 3 contribution credits continue to be given to the qualifying person 'receiving' (or rather having validly claimed) child benefit for a child under 12.

Once made, the appropriateness of the election needs to be reviewed regularly and 'claims' for any new children should continue to be made.

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.

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