High Income Earners Child Benefit Charge: Will It Affect You?

Some families may lose as much as £50,000 over the next 16 years due to cuts in child benefit. Will this affect your family too?

Counting the pennies?

HMRC have announced that households with one partner earning £50k or more will be affected by a high income Child Benefit Charge that takes effect from January 7, 2013..

From January 2013 households receiving child benefit where one parent or partner earns more than £50,000 will be hit with a new income tax charge. This tax, applied at the rate of 1% of the amount of child benefit for each £100 of income between £50,000 and £60,000, means that those earning above £60,000 will effectively receive no benefit at all.

Those affected will have to decide between two options:

1 Keep receiving Child Benefit payments – but if you do you will need to declare the amount you or your partner are entitled to by filling in a tax return each year and registering for Self Assessment if you haven’t done so already

2 Tell the Child Benefit Office that you want to stop receiving Child Benefit payments – in which case you won’t be liable for the new tax charge and won’t need to fill in a tax return (unless you need to for other reasons).

However, a revision to the rules mean that those who choose not to receive child benefit will have two years to revoke the decision if the higher earner’s income turns out to be lower than expected. The effect of this is to ensure that those who elect not to receive child benefit, because they or their partner are on a higher income, should not lose out if their income unexpectedly falls.

Child benefit is tax-free and currently stands at £20.30 a week for the first child and £13.40 for each child after that. For families with three children, losing the benefit is the equivalent of a £4,000 salary cut. According to research from PwC, the government’s child benefit cuts could cost a family with three young children more than £50,000 by the time the children reach the age of 18. However, The treasury said 85% of all UK families with children would be unaffected by the changes and would continue to receive child benefit in full.

Information on the changes and what steps those affected should take can be found here.

We hope you found this useful.

Kind Regards, The S4B Team