From 7 January 2013, a new tax charge will be imposed on all individuals who receive the Child Benefit and whose income, or their partner’s income, exceeds £50,000 in a tax year.
The charge will be proportionately increased until the claimants income exceeds £60,000. At that point, the charge will cancel out the child benefit, reducing the benefit to nil. As a result, households where at least one person earns more than £60,000 will effectively lose their entitlement to the child benefit.
If we look at a parent with two children the child benefit reduces as income rises as follows:
£40,000 – £1,752
£50,000 – £1,752
£55,000 – £876
£60,001 – £nil
The income used by HM Revenue & Customs to calculate the charge is the “adjusted net income”. Very simply, this includes employment income, income from self employment, pensions and investment income less any trading losses, gift aid payments and contributions to a pension scheme.
It may therefore be possible to reduce any exposure to the charge by paying additional gifts to charity or pension contributions.
Millions of parents will be receiving a letter within the next month from HM Revenue and Customs (HMRC) spelling out how their child benefit could be cut. HMRC suggest that up to 500,000 individuals could be brought into the Self Assessment regime, meaning that they will have to complete an annual Self Assessment Tax Return.
If you would like any advice in connection with the Child Benefit Tax Charge, or on any aspects of taxation generally,please do not hesitate to contact us on 0845 177 5500, or using the web form here.