Discover the ins and outs of the High Income Child Benefit Charge, a tax obligation applicable to higher earners seeking to recover up to 100% of the Child Benefit received by them or their partners.
Implemented on 7th January 2013, this charge has stirred controversy, notably impacting single household incomes. The recent surge in inflation has extended its reach to many middle-income households.
Is the High Income Child Benefit Charge Relevant to You?
The High Income Benefit charge applies to taxpayers with earnings exceeding £50,000 in a tax year when they or their partners receive Child Benefit.
This charge is incurred by the taxpayer with ‘adjusted net income’ surpassing £50,000. In cases where both partners breach the £50,000 threshold, the higher-earning partner bears the charge.
According to HMRC, a partner includes not only a spouse or civil partner but also someone living with you as if they were your spouse or civil partner.
The charge is levied at a rate of 1% for every £100 of income between £50,000 and £60,000. Once income surpasses £60,000, the entire Child Benefit received during the tax year must be repaid.
Common Pitfalls and Penalties
Unsurprisingly, a significant number of individuals—almost 20,000 from 2019/20 to 2022/23—have faced penalties for unintentionally neglecting their responsibilities, as revealed by a Freedom of Information Act request filed with HMRC.
For those exceeding the income threshold, there are several options:
- Cease receiving Child Benefit.
- Continue receiving Child Benefit and repay the owed amount.
- Register for Child Benefit but opt not to receive payments, benefiting from advantages like State Pension credits without the need to repay Child Benefit.
Strategies to Reduce Repayment
- Contributing to a pension is an effective and tax-efficient means to lower adjusted net income.
- Donating to charity under Gift Aid can decrease taxable income, thereby reducing the Child Benefit subject to repayment.
- Another option involves salary sacrifice, wherein salary reduction in exchange for non-cash benefits like childcare vouchers and pension contributions can mitigate the impact of this tax charge.
How MJ Kane Can Help with High Income Child benefit
For expert guidance on navigating the complexities, contact MJ Kane at 0293350290 or use our online form for a free consultation.