High Income Child Benefit Charge – will it affect you?

The recent changes to the child benefit system which came into force in January this year, have appeared to cause some confusion amongst higher rate tax payers, says local tax advisers, Inspire.

Most people are aware that when the income of one person in a household is over £50,000 then some of the benefit will have to be repaid. The charge is applied on a percentage basis until 100% of the child benefit received is fully repayable when income reaches £60,000.

However, a common misconception is that the charge only applies when the child is a blood relation of the higher income earner. This is not the case. The repayment charge applies to the household and those living within it. It is the requirement to repay that is assessed on the higher earner, and they will need to register, if they are not already, for the self-assessment system.

If one person in a household is earning at a rate of over £60,000 and another claims child benefit, there is no actual financial benefit from claiming it at all since one person receives it and the other pays it all back. If this is the case, the claimant can elect not to claim online such that they do not receive it in the first place. If however it turns out that there would have been a benefit from having made the claim, HM Revenue and Customs will only backdate claims 2 years, so care must be taken not to lose out if income levels turn out to have fallen at the end of the year.

Remember, eligibility is calculated not just on earnings but on “adjusted net income” so will include all taxable income, including rental income, investments and bonuses.

Some options to consider to reduce your taxable income and thus retain more of your child benefit include; salary sacrifice schemes – replacing taxable earnings with non-taxable benefits, such as childcare vouchers, increasing your pension contributions or transferring savings or investments to your partner.

For more information on the new rules surrounding child benefit visit www.hmrc.gov.uk/childbenefitcharge

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