Because your annual income is £60,000 you and your partner haven’t registered to receive child benefit as HMRC will claw it back through the tax system. Might it be to your advantage to rethink your strategy sooner rather than later?
Child benefit high income charge
In case you weren’t aware of the details of the high income child benefit charge (HICBC), it applies where someone is claiming child benefit and they or their child’s carer has taxable income in excess of £50,000 in a year. The rules which determine who is liable to pay the HICBC are tricky. As a rule of thumb, if you or the person you live with has a child for which benefit is being claimed, the person with the highest earnings pays.
No benefit claimed
The effect of the HICBC is that anyone whose taxable income for a year exceeds £60,000 will have the entire child benefit they or their partner is entitled to clawed back. For this reason many people entitled to the benefit have not bothered claiming as there is no immediate financial advantage in doing so. They should now reconsider their position without delay.
Falling income
A change in your or your partner’s circumstance might result in neither of you having taxable income of £60,000 or more for 2023/24. You might think that should that happen you’ll register to receive the child benefit then. However, by delaying registration you might lose out financially.
Trap. Don’t leave reviewing your income until later just because you will be better able to know what your earnings are. Child benefit will not be paid for any period earlier than three months before the date of your claim.
Tip. If there’s the slightest possibility that you (or the person liable to pay the HICBC) will have taxable income for 2023/24 of less than £60,000, you should make a claim for child benefit. The worst case outcome is the HICBC will neutralise the financial advantage.
Calculating the charge
The HICBC is equal to the amount of child benefit multiplied by the difference between your taxable income and £50,000 divided by 100 and expressed as a percentage.
Example. Sam and Holly live together. They both have a child from previous relationships for which Holly receives the child benefit for both children which amounts to £35 per week (£1,820 for the year). She earns £38,000 a year and Sam, £56,000. They have no other taxable income. The HICBC applies and Sam, as the higher earner, must pay it. The amount payable is equal to the child benefit, £1,820 multiplied by £56,000, less £50,000 divided by 100, which gives 60 (60%), i.e. £1,092.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.