From 7 January 2013 child benefit will be clawed back from certain high-income families by a tax called the high income child benefit tax charge (HICBC). Child benefit will continue to be paid to the parent who claims it, but if that person or their partner earns more than £50,000 for the tax year, the higher earner will have to pay the HICBC. This tax charge is only paid by the highest earner of the couple, who may not be the person who receives the benefit. So if you are a high earner, you may be due to pay a tax charge because of benefit paid to your spouse or partner.
It works like this: for every £100 of earnings over £50,000, 1% of the child benefit received by the family is clawed back as the HICBC. If earnings are over £60,000 all of the child benefit is paid back to the taxman.
You can avoid this new tax charge by ensuring that both you and your partner each have income for the tax year below the £50,000 threshold. This can be achieved in some cases by adjusting who gets paid what out of the family business, or who receives investment income. Alternatively the child benefit recipient can elect not to receive the child benefit. However, this election needs to be regularly reviewed if the income of the higher earner drops below £60,000 for the tax year.
There are lots of complications in calculating ‘income’ for this new tax charge, so talk to us as soon as possible if you want to adjust who receives what in your family. If your income is certain to be over £60,000, you may want to make the election to stop receiving child benefit before 7 January 2013.