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Child Benefit income tax charge

Legislation will be introduced in Finance Bill 2012 that imposes a new charge on a taxpayer who has adjusted net income over £50,000 in a tax year, where either they, or their partner, is in receipt of Child Benefit for the year. This will have effect from 7 January 2013.If both partners have adjusted net income over £50,000, the partner with the higher income is liable for the charge.

The income tax charge will apply at a rate of one per cent of the full Child Benefit award for each £100 of income between £50,000 and £60,000. The charge on taxpayers with income above £60,000 will be equal to the amount of Child Benefit paid.

Child Benefit claimants will be able to decide not to receive Child Benefit if they or their partner do not wish to pay the new charge.

For the tax year 2012-13, the first year of the charge, the amount of income taken into account will be the full amount of income for 2012-13 and the amount of Child Benefit will be that paid in the period from 7 January 2013 to the end of the tax year. For subsequent years, the full amount of Child Benefit and the income for the year will be taken into account.

For more information please see the Tax Information and Impact Note (TIIN)

Removal of child benefit from higher rate taxpayers

And also the following questions and answers.

Child Benefit income tax charge - Questions

Q1: What does the announcement mean?

Q2: How do I know if I'm affected by the change?

Q3: What do I need to do if I'm affected by the change?

Q4: How can I work out what my income tax charge will be?

Q5: I don't work, but my husband/partner has income above £50,000. Will I lose my Child Benefit, as it is paid directly into my bank account?

Q6: I'm a single parent/recently separated but my ex-partner is a high earner - will his income affect my Child Benefit payments?

Q7: My income is above £50,000 and I have recently separated from/joined a partner who receives Child Benefit - how does this affect my liability to the income tax charge?

Q8: Can I stop claiming Child Benefit so that I or my partner do not have to pay the tax charge?

Q9: I have income above £50,000 and I claim Child Benefit for my own child/children and also for my grandchild/children who all live with me - how much tax am I liable for?

Q10: Both my partner and I have income above £50,000 and I receive Child Benefit, which of us will be liable for the income tax charge?

Q11: How will I have to pay the tax charge?

Q12: When will I have to pay the amount due for 2012/13?

Child Benefit income tax charge - Answers

A1: There will be a new income tax charge for someone who has income over £50,000 and either they or their partner receives Child Benefit. There will be no tax charge to pay if neither you nor your partner has income above £50,000.

The amount of the income tax charge will depend on the level of your income over £50,000.

If your income is between £50,000 and £60,000 you will have to pay a tax charge of 1% of the amount of Child Benefit for every £100 of their income above £50,000. If your income is above £60,000 you will have to pay a tax charge that equals the amount of Child Benefit.

For example, if you have income of £54,000 and you or your partner receives Child Benefit for 2 children of £1752 for a whole year, the charge will be 40% of the £1752 Child Benefit = £700. The percentage is determined as follows £54,000 - £50,000 = 4000 /100 = 40%.

If you have income of £70,000 and you or your partner receives Child Benefit for 2 children of £1752 for a whole year, the charge will be on £1,752 which is the full amount of the child benefit received

The amount of Child Benefit you can claim and receive is unaffected. Child Benefit can continue to be paid to you or your partner even if either you or your partner is liable to pay the charge.

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A2: You could be affected if you or your partner:

  • receive Child Benefit on or after 7 January 2013 and
  • One or both of you have income above £50,000

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A3: The proposed change that was announced does not take effect until January 2013. There is no need for you (or your partner) to take any action yet.

HMRC will write to all taxpayers potentially affected by this change in the autumn with further guidance on what options will be available and what needs to be done at that stage.

The HMRC website will also be updated when more details become available

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A4: If your income is between £50,000 and £60,000 you will have to pay a charge of 1% of the amount of Child Benefit for every £100 of your income above £50,000. If your income is above £60,000 you will have a tax charge that equals the amount of Child Benefit.

For example, if you have income of £54,000 and your partner receives Child Benefit for 2 children of £1752 for a whole year, the charge will be 40% of the £1752 Child Benefit = £700. The percentage is determined as follows £54,000 - £50,000 = 4000 /100 = 40%.

If you have income of £70,000 and your partner receives Child Benefit for 2 children of £1752 for a whole year, the charge will be on £1,752 which is the full amount of the child benefit received.

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A5: No, you can continue to receive the full amount of Child Benefit but your husband will be liable to pay the income tax charge.

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A6: You can continue to receive your Child Benefit payments in full. However, if your income is above £50,000 you will be liable to pay the income tax charge.

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A7: If you separated from your partner part way through the tax year you will only be liable to the new income tax charge for the period up to the date that you split up, and not to the end of the tax year on 5 April.

If you joined your partner part way through the tax year you will only be liable to the new income tax charge from the date that you started living together and not from the beginning of the tax year 6 April.

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A8: If you think it is the right decision for you, you will be able to choose not to receive your Child Benefit payments which would mean that you/your partner would not be liable to the new income tax charge. But you should continue to complete claims for any new children even though you will not receive any Child Benefit payments for them. This is because for each week that you are entitled to Child Benefit you could qualify for National Insurance credits which can help to protect your future entitlement to State Pension. You can get credits if you are entitled to Child Benefit for children under the age of 12. This continues until your youngest child reaches the age of 12.

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A9: You will be liable to pay the income tax charge for all of the children because you claim for them all and they all live with you. The amount of the income tax charge will depend on your income and how much Child Benefit you receive. You will have a charge of 1% of the amount of Child Benefit for every £100 of your income above £50,000. If your income is above £60,000 you will have a tax charge that equals the amount of Child Benefit.

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A10: As the Child Benefit claimant, you will be liable to pay the income tax charge unless your partner's income is higher than yours. In this case, your partner will be liable to the charge.

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A11: If you are liable to pay the charge, HMRC should send you a tax return to complete during April 2013. You can find general information about tax returns and Self Assessment on the HMRC web site.

You do not need to do anything yet. HMRC will write to taxpayers in the autumn to explain what they need to do next and what options will be available. If you do not hear from HMRC in the autumn, you will be able to find information on HMRC's website at that time which will tell you what you should do.

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A12: The earliest that you will have to pay the amount due for the 2012/13 tax year will be during the 2013/14 tax year.

HMRC will write to taxpayers in the autumn with more details and to explain what they need to do next.

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