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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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