From 7th January 2013, you may be liable to a new tax charge if you, or your partner, have an individual income of more than £50,000 and one of you is receiving Child Benefit.
It may also apply if someone else receives Child Benefit for a child that lives with you.
Individuals with incomes in excess of £60,000 will no longer qualify for any Child Benefit. Although the change applies from January 2013, the calculation to decide whether or not a household is affected by the change will include the full income for 2012/13. So any household that includes higher earners needs to be aware of the rule changes and should consult a qualified accountant for advice.
So what are the changes?
Who will be affected?
An individual will be affected by the High Income Child Benefit charge (HICBC) if during a tax year any one of the following criteria applies:
• You have an individual income of more than £50,000 and are entitled to receive Child Benefit.
• You have an individual income of more than £50,000 and live (or have lived) with a partner who’s entitled to receive Child Benefit.
• Both you and your partner have an income of more than £50,000 per year, you have the higher income and one of you is entitled to receive Child Benefit.
• You have an individual income of more than £50,000 and both of the following apply: someone else is entitled to receive Child Benefit for a child who lives with you; and they’re entitled because they contribute at least an equivalent amount towards the child’s care. It doesn’t matter if the child that is living with you is not your own child.
Who won’t be affected?
Partners will not be affected if either have individual incomes below £50,000 for a tax year; or neither you nor your partner are entitled (or have been entitled) to receive Child Benefit.
If your income exceeds £50,000 what are your options?
If you are affected by the changes, then you have two options available:
- Keep receiving Child Benefit payments: however, you will need to declare the amount you or your partner are entitled to by filling in a tax return each year and registering for self- assessment if you haven’t done so already
- Tell the Child Benefit Office that you want to stop receiving Child Benefit payments: in which case you won’t be liable for the new tax charge and won’t need to fill in a tax return (unless you need to for other reasons).
If you wish to continue receiving Child Benefit payments, then you will need to declare the Child Benefit and fill in a self-assessment tax return. If you do not currently will in one of these, you will need to register no later than 5 October, 2013, or you may face a penalty. If you already registered for self-assessment, then you will need to declare the Child Benefit you are entitled to receive when you complete your 2012-13 tax return.
If you are in any doubt about whether the new changes apply to you and your circumstances, then we would advise that you contact a qualified accountant like Steven Glicher. We can help you decide whether the High Income Child Benefit charge applies to you and if it does; we can then register you with HMRC. We will also consider those opportunities which will keep the High Income Child Benefit charges to a minimum, and look at your affairs as a whole, to ensure you are paying the right amount of tax.