With effect from 7 January 2013 if you claim Child Benefit, and you or your partner have net income over £50,000 in a tax year, an income tax charge applies (note this is not joint income – if one of you has net income over £50,000 the tax charge will apply).
The income tax charge is calculated as a percentage of the Child Benefit awarded if your net income is between £50,000 and £60,000. If the net income is above £60,000 the tax charge will be the whole amount of Child Benefit received.
For example, if you have net income of £56,000 and your partner has income below £50,000 and you receive £1,752 Child Benefit (for 2 children) for a whole year, the consequent tax charge will be £1,051* and you will have to pay this amount to H M Revenue & Customs.
However, if your net income is £60,000+ and your partner receives £1,752 Child Benefit for a year then the whole amount will be payable to H M Revenue & Customs.
If both of you have net income over £50,000 the partner with the highest net income will be liable for the income tax charge.
If your net income is £50,000+ then you will have to complete a tax return and pay back some, if not all, of your household’s Child Benefit. If you are not already registered under Self Assessment then you will need to complete form SA1 and send this off to HMRC.
You are, however, still able to opt out to ensure no charge for future payments. To opt out you must complete ‘High Income charge: stop your Child Benefit payments’ form.
In summary:
- Check if the tax charge affects you
- Choose whether to opt out of receiving the Child Benefit or to register for Self Assessment
- Consider taking advice from a tax adviser and/or consult HMRC guidance at www.hmrc.gov.uk