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Child benefit tax trap

A family claiming the weekly Child Benefit (currently, £20.70 a week for eldest or only child and £13.70 a week for additional children) may get an unwelcome tax bill if either parents’ income exceeds £50,000 during a tax year.

A tax charge was introduced a number of years ago, known as the ‘High Income Child Benefit Charge’ (HICBC), if either parent had income over £50,000 and:

  • either partner received Child Benefit, or
  • someone else received Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.

It doesn’t matter if the child living with you is not your own child. The charge was introduced to recover Child Benefits from higher income earners.

You may not have considered the HICBC before if your incomes were below the £50,000 cap, but if your income for 2017-18 is likely to exceed this amount you should be aware of the following.

  • Before 6 October 2018, the parent with the higher income for 2017-18 (more than £50,000) will need to register to submit a self-assessment tax return and pay and HICBC due – unless they are already registered in which case they will need to enter the amount of Child Benefit received on the return and pay any tax due.
  • The parent with the higher income, even if they were not the person claiming the Child Benefit, will need to make this declaration.

1% of the Child Benefit received will be recovered by HMRC’s HICBC for every £100 the highest earner’s income exceeds £50,000. Accordingly, once the highest income exceeds £60,000 all the Child Benefits received will be reclaimed.

To avoid the charge, it is possible to decline Child Benefits in the first place. To summarise:

  • Parents where the highest income is below £50,000 will not be affected and can continue to claim Child Benefit with no tax claw back.
  • Parents where the highest income is above £50,000 but below £60,000 will be affected and will need to pay the appropriate HICBC.
  • Parents where the highest income is over £60,000 may be advised to decline future Child Benefit claims as all benefits received will be clawed back by the HICBC.

There are strategies that you could use to reduce your taxable income below the £50,000 or £60,000 thresholds as these are calculated net of any allowable deductions. Please call if you would like more advice regarding these deductions.

This entry was posted on Tuesday, November 14th, 2017 at 12:00 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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