Child Benefit Income Tax Charge

A new income tax charge will apply on a taxpayer who has adjusted net income (explained below) over £50,000 in a tax year where either they or their partner are in receipt of Child Benefit for the year. If both partners have adjusted net income over £50,000, the partner with the highest income is liable for the charge.

The tax charge will apply at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. Therefore, the charge on taxpayers with income over £60,000 will be equal to the Child Benefit paid as it cannot exceed 100% (£60,000 – £50,000/£100).

Example 1

You have income of £55,000 and your partner has either no income or an income of less than £50,000. Your partner receives Child Benefit for 2 children of £1,752 (£20.30 + £13.40 x 52) for a whole year. The percentage tax charge will be determined as follows: £55,000 – £50,000 = £5000/100 = 50%, the tax will therefore be 50% of the £1,752, so £876.

Example 2

If you have income of £70,000 and your partner receives Child Benefit for 2 children of £1,752 for a whole year, the percentage tax charge is determined as follows £70,000 – £50,000 = £20,000/100 = 200%, this is capped at 100%. The consequent tax charge will equate to the whole Child Benefit received i.e. 100% of £1,752.

What is adjusted net income?

Adjusted net income is the measure of income that is used for the calculation of the Child Benefit income tax charge. Adjusted net income is generally your income that is subject to Income Tax, less any gross personal pension contributions and gift aid donations.

Can I avoid an income tax charge?

You could look to manage your net adjustable income below £50,000, through the use of pension contributions or charity donations for example. For contractors, they may have the flexibility to cap their income at £50,000 each year to avoid the charge.

If you expect to have income in excess of £60,000 and you do not wish to pay the charge you can opt out of receiving child benefit altogether. However, you should continue to complete the child benefit claim form for any new children even if you do not want to receive the payments, this is because for each week that you are entitled to Child Benefit you could qualify for National Insurance credits which can help protect your future entitlement to State Pension payments.

What does this mean for me in the 2012/13 tax year?

The first year of the charge will apply in the year ended 5th April 2013. However the change is only effective from 7th January 2013. The amount of income taken into account will be the full income for 2012/13 and the amount of Child Benefit will be that paid in the period from 7th January2013 to the end of the tax year (roughly ¼).

What does this mean for me in the 2013/14 tax year?

This is the first full year that the high income child benefit tax charge will apply. Your total adjusted net income and child benefit received during 2013/14 will be taken into account.