Meg Saksida considers the workings of the high income child benefit charge.
Tax allowances for children have been around since 1798 and are a very welcome contribution to most UK households. In its modern form, child benefit was phased in from 1977 to 1979.
Today, child benefit represents a tax-free payment, calculated weekly and paid every month.
The clawback
In terms of claiming child benefit, anyone who is resident in the UK and is responsible for their own child (or someone else’s) who is aged under 16 will be eligible to claim. Claims will be extended if the child is under 20 but still being educated on approved courses, such as GCSEs, A levels and BTECs. Since 2013, child benefit has been ‘means tested’ and may be therefore be ‘clawed back’.
If a parent or their ‘partner’ have an ‘adjusted income’ exceeding £50,000, the child benefit will be clawed back. This is achieved through the individual’s self-assessment tax return, so those who are liable to the charge may find themselves completing a tax return for the first time. The clawback is 1% of child benefit for every £100 the individual earns over £50,000. This means that by £60,000, 100% of the entitlement is reduced.
For example, a single parent’s income was £55,000. This is £5,000 more than £50,000, so they would lose 1% x 50 or 50%, meaning half the child benefit would be clawed back. If they earned £52,000, 20% would be clawed back; and if they earned £58,000, 80% would be clawed back, and so on.
The clawback is charged on the person who has claimed the child benefit if they are single. However, if they have a ‘partner’, the charge will be levied on the taxpayer in the couple with the highest adjusted net income. As the charge is only levied on one of the couple (i.e. the one with income higher than £50,000) it is possible for the couple to together earn £100,000 and not incur the charge. However, a single parent will have 100% of the child benefit clawed back if their income is £60,000.
For this charge there is clearly a benefit to being in a couple, and furthermore a benefit to making sure the £100,000 joint income is spread as evenly as possible between the couple so that neither of them personally exceed the £50,000 adjusted net income.
Adjusted net income
‘Adjusted net income’ is defined as the individual’s net taxable income, which could come from employment income, interest, dividends, trading income etc., less the gross amount of any personal pension contributions and gift aid donations.
Making pension contributions or charitable donations may be a good strategy to reduce the adjusted income such that the child benefit is not abated.
Who is a ‘partner’?
A ‘partner’ includes one’s spouse or civil partner with whom they are living, but also a person “with whom they are living together ‘as spouses or civil partners’”.
This means that there needs to be no formal partnership for the high income child benefit charge to be levied on the highest income party to the couple. The only requirement is that they are living together.
Practical tip
It is not essential to claim child benefit and if all or most of it will be clawed back due to an individual’s income level it may be in their interests not to claim it in the first place. For those required to make a self-assessment tax return for any other reason, not claiming child benefit will eliminate the need to do so.
